Accounting and taxation treatment of goodwill in Portugal

Abstract

The main goal of this paper is to understand the accounting and taxation treatment of goodwill in Portuguese jurisdiction. For this purpose, the Portuguese accounting and tax laws were investigated. For the accounting part, the Portuguese Accounting Standardization System (Sistema de Normalização Contabilística) was studied. Concerning tax issues, the Corporate Income Tax Law (Código do Imposto sobre o Rendimento das Pessoas Coletivas) was analyzed. The results show that there are some differences between accounting and taxation treatment. In accounting law, the goodwill acquired in a business combination is recognized as an intangible asset. It is amortized over ten years; therefore, it is an asset with indefinite useful life. In terms of tax law, the goodwill amortization is accepted, but only in the case of business combinations’ acquirement. The tax legislator accepts the amortization as a tax cost for a twenty years period, unlike the accounting law (which determines a ten years period, as referred). Differences in treatment occur because these two areas have different goals. The main objective of accounting is the preparation of financial information that will be useful to make economic decisions. Whereas taxation seeks to collect tax revenue to help sustain public spending.