The profit tax

What counts as a tax object for the purposes of profit tax is regulated in Art. 57 Federal Law on Direct Federal Tax and in Art. 24 para.1 Tax Harmonization Act for the cantonal tax. Accordingly, the net profit of a company is decisive for the profit tax. If you have concerns or queries regarding profit tax, please contact one of our tax lawyers.

The tax period for profit tax is the financial year. This is based on the periodicity principle. Thus, taxation should take place in the period in which the profit was economically generated.

For the determination of the net profit, Art. 58 Federal Law on Direct Federal Tax and Art. 24 para. 1 Tax Harmonization Act provide for a number of general provisions. Consequently, the commercial income statement is the basis of this calculation, in line with the principle of the authority of the commercial balance sheet and taking into account the balance carried forward from the previous year. The net profit which has been calculated according to the provisions of commercial law is then adjusted with reference to relevant tax law corrections. Amongst other considerations, expenses that do not serve to cover business-related expenses must be added. This includes the costs for the acquisition of fixed assets or contributions to reserves. In contrast, Art. 59 Federal Law on Direct Federal Tax and Art. 25 Tax Harmonization Act provide for a general clause stating that all expenses are tax deductible if they are incurred for business purposes. This includes federal, cantonal and municipal taxes, but not tax losses.

Transactions which do not affect profit are excluded from profit tax. These are, in particular, capital contributions by members of corporations and cooperatives, including premiums and sunken costs. In principle, everything that members pay to the corporation in their capacity as shareholders is a capital contribution. Since these payments are tax-neutral, a change to the income-affecting additions to assets is of central importance. The distinction can generally be made on the basis of the effect on income.

Furthermore, the differences between commercial law and tax law must be taken into account when considering asset depreciation. According to commercial law, maximum valuation rules apply, which allow hidden reserves to be formed. According to tax law, minimum valuation rules apply, which limit the extent of hidden reserves. Consequently, the realization of hidden reserves is relevant for tax purposes. Hidden reserves always exist if: assets have a higher or liabilities a lower market value than the book value recorded for tax purposes. If hidden reserves are realized (i.e. created) through the sale of a machine with a book value that is recorded too low, the result is a taxable capital gain. In conjunction, the provisions on replacement purchases must also be considered, as these allow the transfer of hidden reserves under certain circumstances.

Finally, provisions charged to the income statement may be permitted. These include obligations existing in the financial year, the amount of which is still undetermined, or risks of loss associated with current assets, in particular goods and accounts receivable. If the justification for the provision ceases to exist, they must be added back to taxable profit.

Finally, the balance sheet and income statement are always subject to review by the tax authorities. If you are unsure about the details of corporate tax law or profit tax, our attorneys specializing in tax law will be happy to help you.