Goodwill accounting and transfer pricing valuations

September 1, 2020

Goodwill and transfer pricing are two seemingly different topics that, in combination, have led to one of the more hotly debated issues in international tax today. The changes that have taken place in both arenas since 2001 will lead to increased interaction between goodwill and transfer pricing in the years ahead. In this article, Rick Cooper and Harrison Vale explore goodwill accounting, the changing balance sheets of U.S. corporations, the relationship between goodwill and transfer pricing, and how goodwill may be treated by increasingly rigorous transfer pricing rules.

The authors begin by looking at the status of both pieces of the puzzle separately, starting with goodwill. In 2001 the Financial Accounting Standards Board issued two statements of financial accounting standards regarding mergers. Among other things, FAS 141, “Business Combinations,” eliminated the pooling of interests method of accounting for merging entities. FAS 142, “Goodwill and Other Intangibles,” replaced the need to amortize goodwill with a process that requires testing goodwill at least annually for impairment. Perhaps not surprisingly, goodwill has increased dramatically over the last two decades.

Transfer pricing, the second piece of the puzzle, has not been silent during this period, either. Both the U.S. and the OECD have revised or updated their regulations and guidelines several times during this same period, particularly the rules involving intangible property. As a result, companies must take greater care when they move intangible property among subsidiaries, lest they run afoul of these changing rules.

To read the full article published in Tax Notes, click here.

Related capabilities

Key contacts