How does a goodwill impairment flow through the 3 statements, considering the tax angle?
Is a goodwill impairment tax-deductible? In most jurisdictions, usually NOT — tax goodwill (arising from the cost basis of an asset deal) is amortized on a fixed schedule over ~15 years (e.g. 15 years under US §197), independent of IFRS impairment tests.
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Comparing the 3-statement effect:
```
Goodwill impairment D&A
EBIT effect −100 −100
Tax shield (30%) 0 +30
Net income effect −100 −70
+ non-cash add-back +100 +100
OCF effect 0 +30
Cash effect 0 +30
Equity effect (retained earnings) −100 −70
```
In most jurisdictions a goodwill impairment has NO cash shield — the lack of tax deductibility eliminates the tax shield. This asymmetry is exactly why goodwill impairment risk is modeled in M&A valuation as 'a loss of equity value with no cash shield'. Full Δ-walk in #631.
'The Bayer glyphosate impairment of $9.3bn brought no tax-shield relief — a full equity hit, full covenant strain, no cash benefit'.