Tax Due Diligence – Tax Due Diligence Is Crucial to the Success of a Business Sale

Tax due diligence is often left out when planning to sell a business. However the results of tax due diligence could be crucial to the success of a transaction.

A thorough study of tax laws and regulations can help identify potential issues that could cause a deal to fail before they become a real problem. These can be anything from the underlying complexity of a company’s tax position to the specifics of international compliance.

The tax due diligence process is also an opportunity to determine whether a company is able to establish an taxable presence in different countries. A foreign office, for example can trigger local excise and income tax. Although an agreement could mitigate the impact, it’s crucial to be proactive and know the potential risks and opportunities.

As part of the tax due diligence process, we analyze the contemplated transaction and the company’s historical acquisition and disposition activities as well as look over the company’s documentation on transfer pricing and any international compliance issues (including FBAR filings). This includes assessing the assets and liabilities’ tax basis and identifying tax attributes that could be used to maximize fortifying data protection protocols with VDR’s robust framework value.

For instance, a company’s tax deductions might be greater than its taxable income, resulting in net operating losses (NOLs). Due diligence can be used to determine if the NOLs can be realized and if they can either be transferred to an owner who is an income tax carryforward or used to reduce tax liabilities following the sale. Other tax due diligence issues include unclaimed property compliance – that, though not specifically a tax subject is now becoming a subject that is being scrutinized by tax authorities of the state.