The decision to pursue a VDA hinges on business strategy and a commitment to proactive compliance. Whether driven by the need to clean up past discrepancies or to prepare for future transactions, businesses stand to gain substantial advantages by embracing the voluntary disclosure process.

By Connie Zoerink

For companies grappling with past non-compliance issues, a Voluntary Disclosure Agreement (VDA) can offer a pathway for remediation. One common scenario where pursuing a VDA becomes imperative is when businesses find themselves in a web of non-compliance issues spanning several years or multiple jurisdictions. Correcting these issues retroactively can be exacting and potentially costly. This is the type of scenario where a VDA steps in as a legal agreement that provides documentation signaling a proactive approach towards tax responsibilities.

A VDA can serve as a strategic tool, particularly in scenarios where businesses are gearing up for significant financial transactions such as mergers, acquisitions, or initial public offerings. Companies pursuing transactions have an incentive to present a clean slate to potential investors or buyers. Through a VDA, businesses can demonstrate their commitment to compliance, thereby mitigating risks and bolstering their negotiating position.

Moreover, engaging in a VDA affords businesses the opportunity to control their narrative. By proactively addressing past non-compliance issues, companies can present their case directly to state authorities, fostering a cooperative environment rather than entering into potentially adversarial audit proceedings.

The benefits of pursuing a VDA extend beyond mere compliance. Businesses often find that states are more receptive and accommodating when approached proactively under a VDA compared to instances where non-compliance is uncovered through audits or nexus questionnaires. The collaborative nature of VDA negotiations can lead to more favorable outcomes, reducing the likelihood of penalties or punitive measures.

The Takeaway

In essence, the decision to pursue a VDA hinges on business strategy and a commitment to proactive compliance. Whether driven by the need to clean up past discrepancies or to prepare for future transactions, businesses stand to gain substantial advantages by embracing the voluntary disclosure process.

More Tax News