Tax due diligence is often omitted when preparing for the sale of the business. However the results of tax due diligence may be crucial to the success of a transaction.
A thorough review of tax laws and regulations can uncover potential issues that could cause a deal to fail before they become a serious issue. They can range from the fundamental complexity of a business’s tax situation to the nuances of international compliance.
Tax due diligence is also a way to determine the possibility that a company could create a taxable presence abroad. For instance, a business in a foreign country could result in local country income and excise taxes and, even though https://allywifismart.com/dropbox-virtual-data-room-review/ there is a treaty between US and the foreign jurisdiction might mitigate the effect, it’s essential to know the tax risks and opportunities proactively.
We look at the proposed transaction, the company’s acquisition and disposal activities in the past, and review any international compliance issues. (Including FBAR filings) As part of our tax due diligence workstream we also look over the transfer pricing documentation as well as the company’s documents relating to the transfer price. This includes assessing the assets and liabilities’ tax basis and identifying tax attributes that can be utilized to maximize the value.
For example, a company’s tax deductions could be higher than its income taxable, leading to net operating losses (NOLs). Due diligence can be used to determine if the NOLs are able to be realized and if they are transferable to an owner who is an income tax carryforward or used to reduce tax liabilities following a sale. Other tax due diligence issues include unclaimed property compliance – which, although not a specific tax issue, is becoming an area of increasing scrutiny by tax authorities of the state.