Facts

The A. AG, based in U., accounted for its securities in the 2019 annual accounts pursuant to Art. 960b para. 1 CO at market price as of the balance sheet date. This resulted in an unrealised gain of CHF 560,823.-, which was neutralised by increasing the existing fluctuation reserve by the same amount. The fluctuation reserve thus increased from CHF 1,087,227.34 to CHF 1,648,049.95.

The Zurich cantonal tax office treated the entire fluctuation reserve as taxable. Following an objection by A. AG, the tax office confirmed this practice. The Zurich Tax Appeals Court partially granted the appeal and referred the matter back to the tax office for further clarification. The Zurich Administrative Court ultimately ruled that the tax deductibility of fluctuation reserves should be denied, but only the new formation of the reserve in 2019 (CHF 560,823.-) could be taxed, as the offsetting of the entire reserve was contrary to good faith.

A. AG then filed an appeal in public law matters with the Federal Supreme Court and requested:

  • full recognition of the fluctuation reserve,
  • in the alternative, recognition of the new formation to the extent of the proven fluctuations in value of individual securities as of 31 December 2019, CO
  • in the further alternative, recognition of the new formation to the extent of a flat-rate fluctuation reserve taking into account average volatility.

Considerations

The Federal Supreme Court first examined the admissibility of the appeal. Since the lower court had only denied recognition of the fluctuation reserve for the year 2019 and the reserve already formed before 2019 was no longer the subject of the proceedings, the Federal Supreme Court could not rule beyond the claims of the parties (Art. 107 para. 1 FSCA).

The matter at issue was whether the formation of a fluctuation reserve on securities portfolios pursuant to Art. 960b para. 2 CO could be recognised for tax purposes as business-related expense. The Federal Supreme Court confirmed that Art. 63 para. 1 lit. b DFTA permits provisions for loss risks on current assets, including securities. However, such provisions may only be made for specific, measurable risks, not for general market risks such as the general volatility of securities. The appellant had not demonstrated any specific risks in its securities portfolio, but had instead formed the reserve on a flat-rate basis in order to neutralise the book gain arising from the revaluation. This is contrary to the tax periodicity principle (Art. 79 paras. 1 and 2 DFTA), which requires the period-appropriate recognition of expenses and income.

The Federal Supreme Court pointed out that while the formation of fluctuation reserves pursuant to Art. 960b para. 2 CO is permissible under commercial law, it does not imply tax recognition. The legislature deliberately refrained from anchoring the tax deductibility of such reserves in tax…