When you are preparing for a business sale tax due diligence could appear to be an afterthought. Tax due diligence results can be crucial to the success or failure of a business transaction.
A thorough examination of tax regulations and tax rules can reveal potential issues that could cause a breach before they become an issue. This could range from the complexity of the financial position of a company to the specifics of international compliance.
The tax due diligence process also considers whether a company is likely to create an taxable presence in different countries. A foreign office, for example, can trigger local excise and income tax. Although an agreement may reduce the effects, it is essential to be proactive and be aware of the risks and opportunities.
As part of the tax due diligence process We analyze the planned transaction as well as the company’s previous acquisition and disposition activities as well as look over the documentation on transfer pricing for the company and any international compliance issues (including FBAR filings). This includes analyzing assets and liabilities’ underlying tax basis and identifying tax attributes that can be used to increase the value.
For instance, a company’s tax deductions might be greater than its tax-deductible income, leading to net operating losses (NOLs). Due diligence can help to determine whether the NOLs can be realized and also the possibility of transferring them to the new owner as carryforwards or used to lower tax liability following the sale. Other tax due diligence aspects include unclaimed property compliance – which, although not strictly a tax topic is becoming a subject of increasing scrutiny by state tax authorities.
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