Proceedings chapter

Sharing and shifting of corporate losses : the new profit shifting ? National Report : Switzerland

Presented at 75th Congress of the International Fiscal Association, Cancun, 22-26 October 2023
PublisherRotterdam : IFA - International Fiscal Association
  • Cahiers de droit fiscal international; 107A
Publication date2023

Swiss law softens the application of the principle of periodicity for the taxpayer by allowing losses to be carried forward for a period of seven years without restrictions as to the deductible amount. Expired losses may even be renewed when corporations need financial stabilization measures. The transfer of losses between two independent entities, as in the case of a merger, is subject to the "economic continuity test" laid down by the Swiss Supreme Court. The absorbing company can, in principle, deduct from its (own) taxable profit the losses that the transferring company has been carrying-forward for the seven preceding tax periods. The rule which applies to the merger implicitly requires "economic continuity."

To examine whether there is economic continuity or not, one should not rely on the balance sheet of the companies at the time of the merger only (so-called: "static standpoint") but ask whether there is an economic justification for the transfer of business (so-called: “dynamic standpoint”). Tax savings is typically not a sufficient economic justification. Furthermore, the transfer is denied in particular when the absorbed company is about to be liquidated. Yet, except for companies de facto liquidated, the law does not limit loss carry-forward after a change of ownership. Such an operation is examined under the judicial doctrine of tax avoidance. Most abusive cases involve a profitable company merged into a loss-making one.

Except for art. 61(5) FDT which deals with the specific case of improper merger loss, Swiss law does not provide "specific anti-abuse rule" aimed at limiting the transfer of losses. As a rule, reorganizations, such as a merger by absorption, allow for (and even require) the transfer of losses. Most of the developments in this matter come from Swiss Supreme Court rulings. The highest court of Switzerland has even suggested an order of priority between the two legal instruments: the "economic continuity test" is to be checked first to confirm the transfer of losses, while the judicial doctrine of tax avoidance is to be used only under specific circumstances of abuse of law. In the case of tax avoidance, the taxpayer may even be denied more than the actual transfer of losses, for example another specific deduction.

With respect to the international allocation of profits, a Swiss company may offset the losses incurred by its foreign permanent establishments. Yet the deduction will be recaptured if, and to the extent that, profits are being made abroad within the following seven years.

  • Transfer of losses
  • Merger
  • Dynamic standpoint
  • Tax evasion
  • Principle of periodicity
Citation (ISO format)
LIEGEOIS, Fabien, VON GUNTEN, Gregory. Sharing and shifting of corporate losses : the new profit shifting ? National Report : Switzerland. In: Sharing and shifting of corporate losses : the new profit shifting ? Cancun. Rotterdam : IFA - International Fiscal Association, 2023. p. 791–815. (Cahiers de droit fiscal international)
Main files (1)
Proceedings chapter (Published version)
  • PID : unige:171490

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