Should the business be activated


Table of Contents

1 term
2 factors that create goodwill or goodwill
3 Balance sheet approach
3.1 Commercial Law
3.2 Tax Law
3.2.1 Obligation to activate in accordance with Section 5 (2) EStG in the case of paid acquisition
3.2.2 Partial depreciation
3.2.3 Negative goodwill
3.2.4 Goodwill after closing down
4 Determination / calculation of goodwill
4.1 Indirect method
4.2 Direct method
5 VAT treatment
6 Related Lexicon Articles

1. Term

Goodwill is the added value that is inherent in a commercial company beyond the intrinsic value (market value) of the individual tangible and intangible assets minus the debts (see BFH of March 27, 1996, Federal Tax Gazette II 1996, 576).

Example 1:

A bought B's company for € 990 thousand and has since continued it under its own name. He took over the existing assets from B with a partial value totaling € 1.2 million and the liabilities in the amount of 690 T €. He correctly accounted for the assets taken over. He booked the amount exceeding the value of the acquired assets as an expense.

Solution 1:

The amount exceeding the value of the individual economic goods taken over minus the debts should not have been booked as a current expense. This is goodwill (Section 246, Paragraph 1, Clause 4 of the German Commercial Code). It is a necessary business asset and must be accounted for as a depreciable, intangible asset (Section 247 (2) HGB). A purchase against payment (Section 5 (2) EStG) of the goodwill is given here. The valuation of the goodwill takes place according to § 6 Abs. 1 Nr. 1 EStG with the acquisition costs according to § 255 Abs. 1 HGB minus the depreciation. The acquisition costs of the goodwill are calculated as follows:

Purchase price of the company of the B990 000 €
./. Value of assets1 200 000 €
+ assumed liabilities690 000 €
AK goodwill480 000 €

Since the goodwill as an intangible WG is not a movable WG, only the linear depreciation according to § 7 Abs. 1 EStG comes into consideration. According to Section 7 (1) sentence 3 EStG, it has a useful life of 15 years. From fiscal year 11 onwards, A should have recognized and depreciated the goodwill.

2. Factors that create goodwill or goodwill

The goodwill is an expression of the profit opportunities of a company insofar as these are not embodied in individual economic goods, but appear to be guaranteed by the operation of a living company (see BFH of March 27, 2001, BStBl II 2001, 771). It is thus calculated from the difference between the total value of the commercial company and the intrinsic value. Factors that create goodwill are not independent shared apartments, but rather dependent parts of the goodwill. Examples of these are:

  • the good reputation,
  • Advantages of the location (e.g. good motorway connection),
  • special know-how of the company,
  • Customer base (see H 5.5 [Customer base] EStH), if it cannot be differentiated from the business value and, according to the objective will of the parties, no particular value is assigned to it
  • well-trained, well-trained staff,
  • efficient organizational structures,
  • secure, affordable shopping,
  • Right to continue the company name
  • Contract doctor license (BFH judgment of February 21, 2017, VIII R 7/14, BStBl II 2017, 689).

In this context, one speaks of an intangible general economic good because a large number of value-creating factors are represented in a shared apartment in goodwill. This is to be distinguished from intangible individual economic goods that are accounted for as independent shared apartments. These include, for example:

  • Copyrights,
  • Concessions,
  • other commercial property rights (patents, publishing rights),
  • Delivery rights,
  • Purchase and contract options.

In general, this is understood to mean legal positions and factual circumstances that, like goodwill, are directly linked to the company as such and its chances of profit, but which can be transferred separately from a company as an independent shared apartment (see BFH of May 28, 1998, BStBl II 1998, 775).

3. Balance sheet approach

3.1. Commercial law

According to Section 246, Paragraph 1, Clause 4 of the German Commercial Code (HGB), the goodwill acquired against payment must be capitalized as an asset that can be used for a limited period of time. In accordance with Section 253, Paragraph 3, Clauses 3 and 4 of the German Commercial Code (HGB) in the version dated August 31, 2015, the following rule applies: If, in exceptional cases, the expected useful life of an internally generated intangible asset cannot be reliably estimated, the production costs are subject to scheduled depreciation over a period of time of ten years to undertake. This also applies to goodwill acquired against payment. If the useful life can be reliably estimated, this must be used as a basis. In the event of permanent impairment, the lower fair value on the balance sheet date is to be applied (Section 253 (3) sentence 5 HGB). In contrast to other WGs of the AV, a valuation that has increased on the following balance sheet dates may not be taken into account (Section 253 (5) sentence 2 HGB).

3.2. Tax law

3.2.1. Activation obligation according to § 5 Abs. 2 EStG in case of paid acquisition

In terms of tax law, there is an obligation to capitalize the goodwill acquired in accordance with Section 5 (2) EStG. This is a wear-and-tear flat share (→ Abnutbaren Wirtschaftsgüter) of fixed assets. The → depreciation is calculated based on a normal useful life of 15 years (see Section 7 (1) sentence 3 EStG). It may also not be measured according to a shorter useful life if, in individual cases, there is evidence that the actual useful life will be shorter than 15 years, e.g. in so-called personal businesses where the company value is so closely linked to the person of the business owner that after his departure, a shorter useful life of the acquired goodwill can be expected. For the treatment of goodwill, see BMF dated November 20, 1986 (BStBl I 1986, 532).

3.2.2. Partial depreciation

The possibility of applying a lower partial value (e.g. reduction due to loss of profitability) remains fundamentally unaffected (see BFH of April 13, 1983, Federal Tax Gazette II 1983, 667). According to § 6 Paragraph 1 No. 2 Sentence 2 EStG there is an option that can be exercised independently of the commercial depreciation obligation (cf. § 5 Paragraph 1 Sentence 1 Clause 2 EStG). The exercise of the tax option to a partial value depreciation is not restricted by the relevance of Section 5 Paragraph 1 Clause 1 Clause 1 EStG. The prerequisite for exercising tax options is, according to Section 5 (1) sentence 2 EStG, the inclusion of the assets that are not shown with the relevant value under commercial law in the determination of taxable profit in special, continuously maintained registers. The directories are part of the bookkeeping. According to Section 5, Paragraph 1, Clause 3 EStG, they must contain the date of acquisition or manufacture, the acquisition or manufacturing costs, the provision of the tax option exercised and the depreciation carried out. To exercise tax options in connection with the relevance of the commercial balance sheet in accordance with Section 5 (1) sentence 1 EStG, see BMF of March 12, 2010 (BStBl I 2010, 239).

3.2.3. Negative goodwill

Negative goodwill may not be recognized. In this case, the asset items must be reduced.

If the total value of the business assets brought in by way of the contribution in kind pursuant to Section 20 (1) sentence 1 UmwStG 1995 does not exceed its book value due to so-called negative goodwill, the acquiring corporation may not increase the book values ​​of the individual business assets to higher values, even if whose partial values ​​exceed the respective book values ​​(see BFH of April 28, 2016, IR 33/14, BStBl II 2016, 913).

3.2.4. Goodwill after closing down

The BFH ruling of January 30, 2002 (BStBl II 2002, 387) comments on the treatment of goodwill after the business has been closed. According to the rulings of the BFH, an original (self-created) as well as a derivative (purchased) goodwill is not to be included in the determination of the profit from the abandonment after a declared business end within the framework of leasing the business. This mainly follows from the consideration that a business value cannot be privatized. He can not by explanation of the Stpfl. be transferred to private assets because it is only conceivable in the context of a commercial operation. The continued existence of the goodwill even after the lessor has submitted the declaration of discontinuation of operation as his business assets (excluding the business) ensures that any profit made by the lessor after the end of the lease from the sale of the goodwill can be recognized as income from commercial operations in the year of the sale.

4. Determination / calculation of goodwill

If a company is taken over and remuneration is paid for the entire company, the goodwill is the amount that is paid over and above the individual economic goods including all independent immaterial shared accommodation. If the goodwill cannot be derived from a purchase price, only an approximate calculation remains. Various calculation methods have been developed for this. The BFH uses both the so-called indirect and the direct method.

4.1. Indirect method

When estimating using the indirect method, the intrinsic value of the company is made up of the partial values ​​of the individual flat shares. The normal rate of return on the annual net income that can be achieved over the long term is generally 10%. Accordingly, a capitalization factor of 10 can also be assumed. Higher interest rates are possible in individual cases. The capitalization interest rate is determined from the so-called base rate and surcharges that are intended to take into account the risk associated with the use of capital. Neither the base rate (e.g. the industry rate or the customary interest rate for long-term borrowed capital) nor the amount of the surcharges (usually 50% to 60%) can be determined mathematically exactly. Therefore, if the parties mutually assume a certain rate of interest, this can only be objected to if it appears to have been chosen arbitrarily (see BFH of April 13, 1983, I R 63/79, BStBl II 1983, 667).

Example 2:

After deducting an appropriate entrepreneur's wage of € 72,000, trader C achieves an annual profit of € 50,000 adjusted for extraordinary and non-operating expenses and income. The interest should be 12% (industry interest rate or customary interest rate + surcharge of 50% to 60%). This results in a capitalization factor of 8.33 (100: 12). The intrinsic value (market value) of the individual tangible and intangible assets is € 200 thousand.

Solution 2:

The total value of the company is determined as the mean value between intrinsic value and earnings value:

Earned value50 000 € × 8,33 =416 500 €
Intrinsic value200 000 €
Total value616 500 € : 2 = 308 250 €
The goodwill is the difference between the total value and the intrinsic value:
Total value308 250 €
Intrinsic value200 000 €
Goodwill108 250 €

4.2. Direct method

The direct method is based on the assumption that goodwill only exists if a profit that exceeds the normal return on the capital employed and the imputed entrepreneur's wages can be achieved in the long term. This so-called excess profit is capitalized.

Example 3:

Facts like example 2.

Solution 3:

Capital investment200 000 €
Interest on the capital× 12 % =24 000 €
Adequate entrepreneur wages72 000 €
Average, sustainably achievable profit122 000 €
Excess profit26 000 €
Capitalization factor× 8,33 =
Goodwill216 580 €

5. Sales tax treatment

The transfer of intangible assets such as goodwill, customer base or life reinsurance contracts (see ECJ ruling of October 22, 2009, Federal Tax Gazette II 2011, 559) is to be treated as → other services in accordance with Section 3.1 Paragraph 4 Clause 2 UStAE (BMF from June 8, 2009). 2011, BStBl I 2011, 582).

6. Related Lexicon Articles

→ Depreciable assets

→ Depreciation

→ Delivery

→ Practical value

→ pensions

→ Other service


Note to editors:© Schäffer-Poeschel Verlag for Economics, Taxes and Law, Stuttgart.