the intersection of AI and VDRs in enhancing due diligence
When you are the preparation for a sale of a business tax due diligence might seem like an afterthought. Tax due diligence results can be crucial to the success or failure of a business deal.
A rigorous review of tax laws and regulations can uncover potential deal-breaking issues before they become problematic. This could be from the fundamental complexity of the financial situation of a business to the nuances of international compliance.
Tax due diligence also looks at whether a company can create taxable presence abroad. For instance, a business in a different country can create local taxation on income and excise and, even though there’s a treaty between US and the foreign jurisdiction might mitigate this impact, it’s important to be aware of tax risks and opportunities proactively.
We analyze the proposed transaction, as well as the company’s transactions with acquisitions and disposals in the past, and review any international compliance issues. (Including FBAR filings) As part of our tax due diligence process we also examine the documentation on transfer pricing and the company’s documentation on the transfer price. 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 could be higher than its tax-deductible income, leading to net operating losses (NOLs). Due diligence can help determine the extent to which the NOLs can be realized and also if they can be transferred to the new owner as an option to carry forward or lower tax liability following the sale. Unclaimed property compliance is a different tax due diligence item. Although it is not a specific tax subject the state, tax authorities are becoming more scrutinized in this field.