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Improve your M&A Value through Tax Due Diligence

July 15, 2014

Take these tax issues into consideration and see enhanced M&A value as a result.

Take time to review your tax issues, they could greatly influence your merger and acquisition (M&A) transaction. In the due diligence process, make certain to consider the following tax matters:

1. Stock Purchase vs. Asset Purchase

In a company, selling stock is favorable for the sales person because it means that, with the purchase, the consumer takes on all of the business' liabilities. In contrast, the consumer prefers to purchase assets because it permits him/her to avoid taking on all of the seller's liabilities by singling out only the assets his/her company requires.

2. State and Local Taxes (SALT)

Compliance with sales and use tax laws for the applicable state is crucial. Things to keep in mind include "bulk sales" laws and the transaction's potential effect on the purchaser's tax liability. Also, if the seller owns a considerable amount of real estate, it is important to take into account the state, county and city tax laws on real estate transfers. There are also corporate income tax considerations. Federal taxable income typically influences these taxes, but this can vary.

3. International Tax Issues

International tax issues should be carefully examined if the seller is a foreign company or conducts business overseas. Issues like transfer pricing, sourcing of foreign and domestic income, and foreign non-income taxes are examples of issues unique to companies doing business in other countries.

Taxes can largely affect the outcome of your transaction, even the transaction itself could be taxable! Tax due diligence can improve the value of your M&A transaction in more ways than one. For a more in-depth overview and more information, read our article, "Tax Due Diligence Enhances M&A Value" by Paul Oliveira, CPA

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