Goodwill amortization & deferred taxes
Goodwill amortization & deferred taxes
Hello all.
I have a question, sorry is it already been answered in a previous topic.
Example: Company A has a Goodwill and it is allowed to be amortized over 10 years from a tax perspective. For a Group level, Goodwill is not amortized and for group accounts the amortizations are reversed.
The group is also creating a deferred tax asset because there is a diference between the tax basis and the accouting basis. More, this diference will be offset when the impairments be recognized at a group level, because it is assumed that the Goodwill will not be the same indefinitly and at some point the group will probably have to book some impairments.
Is this procedure correct, namelly the deferred taxes approach?
Regards.
Artur.
I have a question, sorry is it already been answered in a previous topic.
Example: Company A has a Goodwill and it is allowed to be amortized over 10 years from a tax perspective. For a Group level, Goodwill is not amortized and for group accounts the amortizations are reversed.
The group is also creating a deferred tax asset because there is a diference between the tax basis and the accouting basis. More, this diference will be offset when the impairments be recognized at a group level, because it is assumed that the Goodwill will not be the same indefinitly and at some point the group will probably have to book some impairments.
Is this procedure correct, namelly the deferred taxes approach?
Regards.
Artur.
Re: Goodwill amortization & deferred taxes
No deferred tax on goodwill.
Re: Goodwill amortization & deferred taxes
Well no DT assets anyway.
Re: Goodwill amortization & deferred taxes
No deferred taxes at the creation of the GW because it is assumed that the GW is not taxable accepted and because it is impossible to estimate (it will be as circule).
But in this case is taxable accepted even the depreciations. The problem are the amortizations and to the GW for the Group.
But in this case is taxable accepted even the depreciations. The problem are the amortizations and to the GW for the Group.
Re: Goodwill amortization & deferred taxes
See paras 21-21A of IAS 12
Re: Goodwill amortization & deferred taxes
wait wait, para 21B!
Deferred tax liabilities for taxable temporary differences relating to goodwill
are, however, recognised to the extent they do not arise from the initial
recognition of goodwill. For example, if in a business combination an entity
recognises goodwill of CU100 that is deductible for tax purposes at a rate of
20 per cent per year starting in the year of acquisition, the tax base of the
goodwill is CU100 on initial recognition and CU80 at the end of the year of
acquisition. If the carrying amount of goodwill at the end of the year of
acquisition remains unchanged at CU100, a taxable temporary difference of
CU20 arises at the end of that year. Because that taxable temporary difference
does not relate to the initial recognition of the goodwill, the resulting deferred
tax liability is recognised.
Deferred tax liabilities for taxable temporary differences relating to goodwill
are, however, recognised to the extent they do not arise from the initial
recognition of goodwill. For example, if in a business combination an entity
recognises goodwill of CU100 that is deductible for tax purposes at a rate of
20 per cent per year starting in the year of acquisition, the tax base of the
goodwill is CU100 on initial recognition and CU80 at the end of the year of
acquisition. If the carrying amount of goodwill at the end of the year of
acquisition remains unchanged at CU100, a taxable temporary difference of
CU20 arises at the end of that year. Because that taxable temporary difference
does not relate to the initial recognition of the goodwill, the resulting deferred
tax liability is recognised.
Re: Goodwill amortization & deferred taxes
So, yes, there should be recognized deferred taxes correct?
I read that but stay with some doubts even
Because, at least for me, it is the first time i get this situation.
Regards.
Artur.
I read that but stay with some doubts even
Because, at least for me, it is the first time i get this situation.
Regards.
Artur.
Re: Goodwill amortization & deferred taxes
yes, you recognise def tax liability for the amount amortised since initial recognition
Re: Goodwill amortization & deferred taxes
So to be clear, you have a standalone company which has goodwill in it's own books? How did that arise, did it acquire some trade and assets as a business?
And in your country, for tax purposes you get an allowable deduction against tax for goodwill? Which country is that?
And in your country, for tax purposes you get an allowable deduction against tax for goodwill? Which country is that?
Re: Goodwill amortization & deferred taxes
Hello, yes, that is the case, the company acquired assets and liabilities as a business.JRSB wrote: ↑26 Dec 2020, 16:32 So to be clear, you have a standalone company which has goodwill in it's own books? How did that arise, did it acquire some trade and assets as a business?
And in your country, for tax purposes you get an allowable deduction against tax for goodwill? Which country is that?
And for tax purposes it is allowed the Goodwill amortization.
In this case, the country is Poland.
Regards.
Artur.
Re: Goodwill amortization & deferred taxes
I've seen in practice a similar situation where goodwill was amortized for the tax purpose at the separate FS level and related deferred taxes were recognized. But that was under US GAAP, though I guess similar accounting is expected under IFRS too
Re: Goodwill amortization & deferred taxes
Hello,
based on the discussion below and what Marek said:
I invested in a company and I paid 100 USD for fair value net assets 60 USD [regular assets 135 USD, deferred tax assets 5 USD*, trade payables 55 USD, provisions 25 USD], so my book goodwill is 40 USD (= 100 - 135 - 5 + 55 + 25).
*deferred tax assets 5 USD = calculated from provisions, i.e., 25 USD * 20% tax rate
However, the tax law doesn't allow provisions/accruals to be taxable costs (tax base = nil), so in the view of tax law the goodwill is 20 USD (= 100 - 135 - 0 + 55 + 0).
Please correct me if I'm wrong, but for me that's clear I do not try to calculate deferred tax liability on the difference between 40 USD (book godwill) and 20 USD (tax goodwill):
- IAS 12.15: A deferred tax liability shall be recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from:
(a) the initial recognition of goodwill;
However, both book and tax goodwill can be depreciated and in fact are depreciated at rate 20% annually.
After the first year, carrying amount of book goodwill is therefore 32 USD whereas tax base is 16 USD. Do I calculate DTL on that?
My view: I do not, because IAS 12.21A:
- Subsequent reductions in a deferred tax liability that is unrecognised because it arises from the initial recognition of goodwill are also regarded as arising from the initial recognition of goodwill and are therefore not recognised under paragraph 15(a).
and this in fact is a reduction in a DTL that was unrecognised because it had arisen from the initial recognition of goodwill. So still no DTL. Any thoughts?
based on the discussion below and what Marek said:
Assume tax rate is 20%.yes, you recognise def tax liability for the amount amortised since initial recognition
I invested in a company and I paid 100 USD for fair value net assets 60 USD [regular assets 135 USD, deferred tax assets 5 USD*, trade payables 55 USD, provisions 25 USD], so my book goodwill is 40 USD (= 100 - 135 - 5 + 55 + 25).
*deferred tax assets 5 USD = calculated from provisions, i.e., 25 USD * 20% tax rate
However, the tax law doesn't allow provisions/accruals to be taxable costs (tax base = nil), so in the view of tax law the goodwill is 20 USD (= 100 - 135 - 0 + 55 + 0).
Please correct me if I'm wrong, but for me that's clear I do not try to calculate deferred tax liability on the difference between 40 USD (book godwill) and 20 USD (tax goodwill):
- IAS 12.15: A deferred tax liability shall be recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from:
(a) the initial recognition of goodwill;
However, both book and tax goodwill can be depreciated and in fact are depreciated at rate 20% annually.
After the first year, carrying amount of book goodwill is therefore 32 USD whereas tax base is 16 USD. Do I calculate DTL on that?
My view: I do not, because IAS 12.21A:
- Subsequent reductions in a deferred tax liability that is unrecognised because it arises from the initial recognition of goodwill are also regarded as arising from the initial recognition of goodwill and are therefore not recognised under paragraph 15(a).
and this in fact is a reduction in a DTL that was unrecognised because it had arisen from the initial recognition of goodwill. So still no DTL. Any thoughts?