Valuation of Business Restructurings in Germany – Part II: Economic Life of Intangible Assets

For multinational enterprises having to conduct business restructurings in Germany, the existing regulations and guidance are causing problems, including high exit charges and the risk of double taxation. One major aspect in that regard is that the German tax legislation assumes an indefinite time frame of capitalization for the valuation of business restructurings, unless reasons can be provided for a definite useful life. Empirical evidence shows that there are prudent reasons why the assumption of an indefinite capitalization period for the valuation of a transfer package, especially for whole business units, is questionable. In Part I of this short series of articles, the authors have come to the conclusion that in case of business restructurings, it seems appropriate to assume that the lifetime of a company is limited. The indefinite time frame of capitalization for the valuation of business restructurings which is codified by German tax legislation thus leads to overvaluations and non-arm’s length transfer pricing, which is detrimental to the affected multinational enterprises. This second part of the series focuses on the role of intangible assets with regard to business restructurings and addresses the question of whether an indefinite capitalization period for intellectual property also leads to overvaluations and non-arm’s length transfer prices.