Facts

Company X. SA granted loans to two debtors, [C.] and [D.], in 1990 and 1991. The debtors encountered financial difficulties and the company ceased to calculate interest on the loans in 1995. The company amortized the loans in 2001 and 2002. The Cantonal Tax Administration refused to take these amortizations into account for the calculation of the cantonal and communal tax (CCT) and the federal direct tax (DFTA). The company filed an appeal against this decision, which was partially admitted by the Cantonal Court. The Cantonal Administration filed a public law appeal against the Cantonal Court's judgment.

The key facts are as follows

  • Company X. SA granted loans to [C.] and [D.] in 1990 and 1991.
  • The debtors encountered financial difficulties and the company ceased to calculate interest on the loans in 1995.
  • The company amortized the loans in 2001 and 2002.
  • The Cantonal Tax Administration refused to take these amortizations into account for the calculation of the CCT and the DFTA.

Considerations

The Federal Court examined the Cantonal Administration's grievances and found that the company had retained until 2001 and 2002 the hope of recovering the loan capital. The Federal Court also found that the company had agreed with the Cantonal Administration to wait for the end of the appeal procedure concerning taxation for the periods 1993 and 1994 before deciding how to treat the loans from a tax and accounting perspective.

The Federal Court then examined the question of whether the periodicity principle opposed the consideration of the company's extraordinary amortization. The Federal Court found that the periodicity principle must be applied in general, but that one cannot refuse to consider an extraordinary…