Bookkeeping – when to write off or provide for a bad debt?

👉 At the end of 2010, the taxpayer granted a credit facility of CHF 700,000 to a third-party company. The loan comprises (i) annual interest of 11% p.a., (ii) plus conditional annual interest (in the event of default) of 81% p.a., (iii) plus a 50% share of the profit realised on the activity financed by the loan. An initial tranche of CHF 150,000 was paid to the company. By the end of 2011, the entire credit line had been drawn down. The loan was terminated at the end of 2011 with effect from 30 June 2012. In autumn 2012, the taxpayer served a CDP against the company. At the end of 2012, the taxpayer sold his claim to a third-party company for 25% of its nominal value. The taxpayer wrote off the balance of the claim (75% in principal + interest).

The third-party company acquires other receivables against the debtor company. The third-party company does not recognise the receivables against the debtor company in its 2012 balance sheet.

The third-party company transfers all debts owed by the debtor company to Paul, a private individual – who would become a director of the taxpayer ten years later.

The debtor company carried out a property transaction in 2013 with the taxpayer's sister company as the initial seller and a third party as the final buyer. With the profit made on the transaction, the debtor company reimbursed the new creditor, Paul, for the entire debt.

The taxpayer's claim and successive appeals are rejected. An initial appeal to the Federal Court (TF) is successful and the case is remitted to the cantonal court of last instance for further investigation and a new judgment, with the new judgment again being negative for the taxpayer.

The federal judges find, in fact, that the debtor company was in deficit in 2010, when the credit line was granted, without it being over-indebted at that time. In 2011, the debtor company was over-indebted. This information was known to Jacques, the de facto manager of the taxpayer. It turns out that Paul is also the de facto manager of the taxpayer.

It is very difficult to determine when a debt begins to become doubtful and when it actually is (see point 4.2.). The taxpayer is the only one who knows when there is reason to write off or make a provision for a debt, unless the momentum was chosen for purely tax opportunism (see point 4.2.).

The ruling is in German. It is an Aargau case.

TF, judgment 9C_455/2024, of 28 March 2025