- During mergers and acquisitions (M&A), due diligence often overlooks potential issues with the target company’s past sales tax compliance, despite these being critical deal-killers.
- Poor due diligence, especially ignoring past tax liabilities, is a significant reason why many M&As fail, with sales tax infractions potentially exposing up to 10% of a business’s overall revenue.
- Proper tax due diligence should include a thorough review of the target company’s tax background, including sales tax history, especially if the companies involved are in different industries.
- Key steps to assess sales tax risk include determining nexus, reviewing the taxability of products and services, and estimating exposure to develop a mitigation strategy, which may involve escrow funds or voluntary disclosure agreements (VDAs).
- Ignoring sales tax obligations can jeopardize deals, so sales tax should be treated with the same importance as other taxes, and consulting with experts like TaxConnex is advised to ensure compliance and mitigate risks.
Source: taxconnex.com
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
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