With effect from the first of January 2016, the law has completely changed the tax and accounting treatment in Spain of the goodwill.
Before 2016 goodwill, like other intangible assets without a defined useful live – such us trademarks, licenses and the like- was not amortized. Instead, it had to pass every year an impairment test to determine if its fair value was below its net accounting value. As a result of this test, the company could register an impairment loss, which was allowed as well for tax purposes.
For tax purposes, however, tax payers were allowed to take a deduction every year of 5 % the goodwill subject to certain requirements. The most important one was to create a capital reserve (not disposable, “the goodwill reserve”) out of the yearly profits for the amount deducted.
All of this has changed now. Section 4 of article 39 of the Commercial Code state now that intangible assets are assets with a defined useful life. When the useful lives of these assets cannot be reliably estimated, they will be amortized over a period of ten years, unless otherwise provided by law or regulation. Goodwill may only be included in the assets of the balance sheet when it has been acquired for consideration. It shall be presumed, unless proven to the contrary, that the useful life of goodwill is ten years.
As we can see the goodwill will be amortized over 10 years (10% each year of course) except if it is proved that its useful life is different, thus disappearing the obligation to subject the goodwill to an annual impairment test . As to the question of when to start computing this 10-year term with respect to the goodwill previously recorded, it seems that the starting date should be January first, 2016 (ending therefore on December 31, 2025).
This legal change has, in turn, eliminated the obligation to allocate to the goodwill reserve profits representing at least five percent of the amount of goodwill that appeared on the asset side of the balance sheet.
In correlation with this last modification, the law says that in the years beginning on or after January 1, 2016, the goodwill reserve will be reclassified as voluntary reserves of the company and will be available for distribution as dividends as of the date in the amount that exceeds the goodwill recorded in the assets of the Company.
With regard to the taxation of goodwill, the amortization of the goodwill remains unchanged, so that it will be deductible with the maximum annual limit of the twentieth part of its amount (5 %).
That is, for tax purposes, tax payers can only deduct only 5% of its total value as a goodwill amortization. Therefore, due to the difference between the tax and accounting depreciation, as from 2016 we must take into account a temporary difference deductible (a deferred tax liability) when accounting for Corporate Income Tax.
Please do not hesitate to contact us for further information or clarifications