Jurisprudence – accounting for provisions

The taxpayer accounted, as a charge to the income statement, for a holiday accrual of CHF 250,000 (for a net profit of CHF 153,216). The tax authorities refused the deductibility of this provision for corporate income tax and capital tax.

According to the cantonal judges
The provision aims to neutralise, year after year, the impact of employees' holiday carry-over on the company's turnover (and not on the risk of having to pay for these holidays rather than granting them).
This provision attempts to offset the results of the financial years against each other.
which violates the principle of periodicity
The change in turnover is inherent to all entrepreneurial activity and depends on many factors that cannot be controlled.
The company is in a going concern situation, meaning there is no concrete risk of having to pay for untaken holidays to employees during the following financial year (provision principle).
The company has not demonstrated a concrete risk of employment relationship terminations requiring the payment of untaken leave.

The judges of the Federal Supreme Court
recall the principle of determinacy of accounts (para. 5.1) and that accounts should only be amended if there is a tax law rule permitting it
👉 such a corrective rule exists in this case
The commercial justification for a provision must be analysed in light of all the elements present at the time the balance sheet is drawn up.
👉 Provisions for existing commitments during the financial year whose amount is not yet determined are authorised
provisions for contingent liabilities that are very likely to materialise are permitted
provisions made for future use, notably to meet expenses due to its future activity, represent reserves
The provisions form part of the taxable income and are only deductible once the related expense has been incurred.

The ruling is in French. It concerns a case from Geneva.

TF, judgment 9C_192/2024, of 3 July 2024