Switzerland: Use of a Swiss company’s tax losses after a change of tax status

Flurin Poltera		Gabriela Schwarz

Holding companies in Switzerland are, under certain conditions, exempt from cantonal/communal income taxation. Consequently, their income is only subject to taxation on a federal level. If such a company generates losses, for example as a result of valuation allowances on investments and loan receivables, or because of interest expenses, the question arises whether such losses can be used in a tax effective manner if the holding status no longer applies and the company is subject to ordinary taxation. There are various reasons for a change in tax status: the requirements for the tax status may no longer be fulfilled, a tax privileged company might merge with an operating company or a company might voluntarily waive its tax privilege. Based on a federal court decision, there are two options for the cantons how they can treat tax losses generated before the change of the tax status:

• Some cantons allow for a taxpayer to disclose, before changing its tax status, the hidden reserves generated under the holding regime in a tax neutral manner. In such a case, both losses and re-valuation gains are treated in the same manner, as they are both disregarded for income tax purposes. In cantons which apply this practice, the tax authorities are entitled not to consider tax losses generated before the change of tax status.
• Cantons which do not foresee such tax neutral step-up should accept the tax losses carried forward which were generated under the privileged tax regime.

The same should also apply with regard to companies benefiting from other tax privileges (for example mixed companies) if they become subject to ordinary taxation.

In any case, the company must claim the beneficial treatment, it will not automatically be granted by the tax authorities. It is therefore important for Swiss taxpayers to take the necessary steps to ensure no tax attributes are lost in the course of a change of the tax status. To get advance comfort in such situations, a ruling request can be filed, upon which the Swiss tax authorities typically confirm the consequences of a change in tax status, including the step up or the availability of tax losses, respectively.

Flurin Poltera (fpoltera@deloitte.ch)
Tel: +41 58 279 7217

Gabriela Schwarz (gschwarz@deloitte.ch)
Tel: +41 58 279 7367
Deloitte

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