This creates circularity, because the fair value should include the present value of the tax savings. The present value of the tax savings caused by the amortisation of an asset is a mathematical function of its fair value. Consequently, in a share deal a deferred tax liability needs to be booked in the acquirer's consolidated financial statements. In a share deal, hidden reserves are only recorded as accounting consolidation adjustments on the acquirer’s financial statements and the tax bases of the assets are not adjusted. Thus, the acquirer will be able to realise TAB on the excess of the fair value of an asset over its previous book value (“Hidden Reserves”). In an asset deal, the acquirer will activate the acquired intangible asset at its fair value. share deal: Realization of TAB and recognition of a deferred tax liability (DTA) Check these countries in our detailed table.Īsset deal vs.
In such cases, the TAB factor will equal 1.0 (no tax amortisation benefit). Some countries do not allow tax amortisation of some types of intangible assets. Should the TAB factor be applied to the value of intangible assets in all countries? In the market approach, value is estimated from market prices paid for comparable assets and the prices shall contain all benefits of owning the assets (including tax amortisation benefit). However it is incorrect to apply the TAB factor if using a market approach (i.e. It is correct to apply the TAB factor if the intangible asset is being valued through an income approach valuation (i.e. Should the TAB factor be applied to the value of intangible assets under every valuation method? The inclusion of tax amortisation benefits in fair value is implicit in FASB Accounting Standards Codification 740 Income Taxes (ASC 740), which requires assets acquired and liabilities assumed to be stated at their “gross” fair value, even if the transaction happens to be a non-taxable business combination rather than an asset purchase. One should always recognize the value of amortisation benefits when the purpose of the appraisal is a purchase price allocation for financial reporting purposes according to IFRS and US GAAP.
What do IFRS and US GAAP say about including tax amortisation benefits in the fair value of intangible assets? The TAB is added to the value of the intangible asset on the premise that a potential purchaser will be willing to pay an amount that reflects the present value of the tax amortisation benefit. How does the TAB affect the fair value of an intangible asset? This idea is analogous to the treatment commonly afforded to depreciation expense in net present value calculations. When the purchaser of an intangible asset is allowed to amortise the price of the asset as an expense for tax purposes, the value of the asset is enhanced by the present value of the future tax savings allowed by the amortisation. Amortisation of assets decreases the net taxable income and thereby the corporate income tax to be paid as cash. Tax amortisation benefit (TAB) refers to the net present value of income tax savings resulting from the amortisation of intangible assets. What is the Tax Amortisation Benefit (TAB)?
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