A Brief History of Accounting for Goodwill in Japan and France: War, Tax and Accounting Practice

Following the work by Ding et al. (2008) on accounting for goodwill in Western countries, this paper seeks to provide more details about goodwill history in Japan and France.Unlike in Anglo-Saxon countries, accounting for goodwill in France has been mainly tax-dominated during the 20th century. Only in the 1980s did European directives challenge a long tradition of permanent retention of goodwill. Recently, the growing influence of international accounting standards comforted the French tax tradition on permanent retention against newly introduced amortization.Ding et al. (2008) concluded that the French goodwill history was an exception compared with the three other countries of their study (United States, Great Britain and Germany) where tax seemed to have little influence on goodwill. In this paper, we argue the opposite: goodwill accounting in Japan was also influenced by tax during the 20th century, especially in the interwar period.In the 1930s, the Japanese tax administration recommended that goodwill should be capitalized and amortized, which was uncommon in the interwar period. Despite many accounting academics disagreed with goodwill capitalization at that time, business practices complied with tax requirements. After the war, the treatment of goodwill in financial accounting grew away from tax, but tax practices remained influent indirectly through the pooling-of-interests method of accounting for business combinations.