Deferred Tax (in Business Combinations)

Definition

The tax effect arising from temporary differences between the fair values assigned to assets and liabilities in a purchase price allocation and their corresponding tax bases. Under IAS 12 and ASC 740, deferred tax liabilities are recognised on the step-up in fair value of acquired intangible assets (which typically have zero tax basis), while deferred tax assets may arise on assumed liabilities. Deferred tax adjustments are a significant component of most purchase price allocations and directly affect the residual goodwill calculation.