Purchase price | 200

Fixed assets | 100

Quiet reserves from AV | 20

Activation Patent | 50

Subtotal | 170

From It: Debt | 100

Total operating assets | 70 | – 70

Goodwill | 130

A goodwill arises whenever an entrepreneur buys the company of another and not only pays the individual assets, but pays even more because the company has a customer base, location advantages, etc. In this article, we deal with the question of what a company good is, when it can be capitalized and accounted for, as well as with some individual cases.

Goodwill (in short: GuF value; hereinafter referred to only as goodwill) is the name for the essential contents of a company, which were neither acquired nor produced but were created by the entrepreneurial activity. This includes, for example and in particular, the customer base, the brand or the name, the know-how, location advantages, personnel equipment or quality, supplier contracts as well as the company structure and the company structure. The company value is therefore also often referred to as “goodwill”, since it comprises the values that distinguish a company from other companies on the market – the good reputation, so to speak.

Goodwill: Recognition and Accounting

Companies therefore basically create the company value themselves. The counterpart to a self-created goodwill, on the other hand, is the goodwill acquired in return. For the further assessment of the balance sheet, it is therefore important that we distinguish these two versions of company values from each other. We will also have to distinguish the trade balance from the tax balance. Although a single balance sheet (tax balance follows the trade balance) should be the rule, this decisiveness of the trade balance is eliminated here – separate rules apply to the tax balance.

2.1. Self-created goodwill vs. goodwill acquired for payment

A self-created company value here is a company value that was created by one’s own entrepreneurial activity; It is thus a built-up company – a so-called original company value. A company value acquired for payment, on the other hand, is a company value that has been acquired in a company purchase – a so-called derivative company value.

This means “co-acquired” in the sense that you have paid more for the company than it is purely material value. When you buy a company, you logically pay for all assets (buildings, machinery, vehicles, etc.) that are included in the company; Then there are the hidden reserves. If, however, the purchase price is now more than the assets plus hidden reserves and less corporate liabilities, this difference is due to the goodwill acquired for remuneration.

2.2. Goodwill and its Approach

In both commercial law and tax law, a self-created goodwill cannot be capitalized and thus cannot be written off (activation prohibition).

So you can only recognise and write off a company goodwill acquired for a fee. This applies both in commercial law and in tax law. However, the difference between trade balance and tax balance lies in the fact that the goodwill is written off in the trade balance over 10 years and in the tax balance a write-off over 15 years.

The tax depreciation is therefore slower than the commercial depreciation. This creates a different tax balance from the trade balance for a period of 15 years. However, it should be noted that if there is a discrepancy between trade balance and tax balance, there are always deferred taxes in the trade balance, in our case there are active deferred taxes.

In the case of a company purchase, the goodwill is the amount which exceeds the total amount consisting of individual assets including all hidden reserves, as yet unrecognized assets (for example patents) minus any corporate debts. This means that both hidden reserves and assets not yet accounted for must be activated before the recognition of a company’s goodwill can take place.

For example: A buys the sole proprietorship of the B in whole. The purchase price is EUR 200,000. There are EUR 100,000 in fixed assets in the B individual company; the hidden reserves on this amount to EUR 20,000. In addition, B still has a patent valued at EUR 50,000 that has not yet been activated; the company’s debt is EUR 100,000.

The goodwill is therefore calculated as follows:

Both the hidden reserves and the previously unaccounted for patent are now fully capitalised and written off in addition to the goodwill. So far, the patent has been subject to an activation ban, similar to the company value.

Furthermore, in cases where no purchase price or other consideration or consideration flows, the goodwill must be determined by the direct method or indirect method; BFH uses these methods regularly. The surcharges, yield and capital interest factors are included here in order to determine the company value.

When a sole proprietorship is transferred to a GmbH, the book value is pursued for the benefit of tax neutrality. However, you can also choose a higher value on request up to the common value of the transferred operating assets. By using the common value of the operating assets, the hidden reserves (1st priority) can be uncovered and any goodwill (2nd priority) can then be activated – all at the acquiring GmbH. But an intermediate approach, i.e. a value between the book value and the common value, is also possible.

In such cases, therefore, if circumstances permit, an activation of the goodwill can take place; Unfortunately, only after the discovery of the hidden reserves.

The problem, however, is that in such a case the previous sole proprietor, if a value above the book value is set, has to tax the contribution as a business sale according to § 16 EStG. However, this can be counteracted with the allowance and the fifth rule or half the tax rate.

3.2. Outgoing co-entrepreneur & severance payment as activation

However, in the case of a partnership it may happen under certain circumstances that the remaining co-entrepreneurs (= partners) would like to force an unpleasant co-entrepreneur out of the partnership. For this, the unpleasant co-entrepreneur is usually paid a severance payment in order to make the exit easier.

Here it may happen that the severance payment comprises both the share of the unpleasant co-entrepreneur in the accounted operating assets, in the hidden reserves and in the previously unrecognized goodwill. The BFH has decided (from 16.05.2002 – III R 45/98) that in such cases there is a paid acquisition of the co-entrepreneurship. The share of the unpleasant co-entrepreneur was quasi bought by the remaining co-entrepreneurs and thus acquired in return for payment.