No repeat amortisation of goodwill

Goodwill acquired in a business transaction is capitalised in the business’ balance sheet, then amortised against business earnings. The amortisation of goodwill does not lend itself for repetition: once a particular item has been fully amortised, this renders it unavailable for further capitalisation (or, indeed, amortisation).

An entrepreneur as part of the termination of his employment contract was entitled to collecting a 45,000 euro severance fee while being under the obligation owing to his contractual non-solicitation clause to pay just over 35,000 euros for taking over certain clients from his former employer. The entrepreneur accounted for the balance, in the amount of 10,000 euros, as part of his profit from business operations for the year during which he had collected the relevant payment. However, according to the District Court the entrepreneur ought to have accounted for the gross amount of the severance fee, at 45,000 euros, as wages from employment while taking the 35,000 euros to his balance sheet for goodwill capitalisation purposes. The entrepreneur by accounting for just the balance of the two amounts had effectively amortised all goodwill in one fell swoop. When during a subsequent (financial) year, quoting the “doctrine of error”, he attempted – belatedly – to capitalise and amortise the goodwill, the Tax and Customs Administration put its foot down.

The District Court sided with the Tax Office, which it said had acted appropriately by denying permission to re-capitalise goodwill for re-amortisation against business earnings quoting the doctrine of error, with the Court of Appeal for Arnhem-Leeuwarden going on to rule in a similar sense and the Supreme Court – as the most senior judicial authority – eventually setting aside, without further ado, the entrepreneur’s final appeal (appeal in cassation).

Dutch version: Niet twee keer afschrijven op goodwill