Amortization of goodwill in the acquisition of equity interests: benefits and limitations of tax deductions

The Brazilian tax system provides for a tax benefit in the form of deduction of expenses incurred with the amortization of goodwill. This benefit has been the subject of endless debate since it was first allowed over 37 years ago.

In this edition of our Newsletter, we discuss the rules and procedures that regulate the use of goodwill for tax purposes, as well as specific situations in which it has been challenged by tax authorities. More specifically, we address the following aspects of the tax benefit (i) general overview of the rules and procedures referred to deductible expenses incurred with goodwill; (ii) the restrictions that apply to goodwill arising from intercompany transactions; (iii) the utilization of vehicle companies with the purpose of forming the goodwill, and (iv) limits to M&A transactions structured to achieve deductible expenses related to goodwill.

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