Since the beginning of 2020, the Coronavirus has slowed down the global economy considerably, if not brought it to a standstill in certain areas. Although the global impact of the virus only became known to the public in the course of February 2020, its origins date back to December 2019. For companies, the question therefore arises as to whether the financial consequences of the ongoing crisis must, can and/or may already be taken into account (for tax purposes) in the 2019 financial statements.
In accordance with the periodicity principle, expenses and income are to be allocated to the period (financial year, tax year) in which they were incurred. The formation of provisions can also take account of future outflows of funds, lower inflows or reductions in value. Whether a provision is to be set up is determined at the time of the balance sheet date, for example 31 December.
If the triggering event, i.e. the cause of a future cash outflow, lower inflows or reductions in value, already exists at the balance sheet date, a provision is to be charged to the financial statements. For this purpose, information may also be used which only became known after the balance sheet date. However, if the triggering event has occurred after the balance sheet date, its expected effects must be disclosed in the notes to the financial statements.
Provisions charged to the annual financial statements are - if they comply with commercial law - also relevant for tax purposes (so-called authoritative principle of the commercial balance sheet). Corrections by the tax authorities are only made to the extent that the commercial balance sheet obviously violates mandatory commercial law or tax law has a corrective norm, which applies in particular to expenses, depreciation and provisions that are not justified under commercial law.
Commercial law requirements for the formation of "COVID-19-provisions"
The formation of provisions in accordance with commercial law requires that future results
- are based on a past event, and
- lead to a probable outflow of funds, lower inflows or impairment.
The primary question that arises here is whether one can speak of a "past event" with regard to the Coronavirus.
In its update of March 20, 2020, specialist association for auditing, taxes and fiduciary (EXPERTsuisse) is of the opinion that the Coronavirus is an event that only occurred after December 31, 2019. Consequently, it would not be necessary to include it in the 2019 financial statements, but the possible effects should be disclosed in the notes to the financial statements. This view is based on the observation that the Coronavirus did not start to have an impact outside China until 2020 and that the situation in Switzerland has only worsened since the Federal Council's decision of 28 February 2020 to classify the circumstances as a “special situation”. Nevertheless, given the extraordinary situation with presumably strong financial consequences for individual companies, it is entirely conceivable that, within the scope of the possibilities offered by the Swiss Code of Obligations, it might be possible to examine, for example, the making of additional value adjustments or the creation of provisions as instruments to ensure the long-term prosperity of the company (within the meaning of Art. 960a para. 4 CO and Art. 960e para. 3 no. 4 CO).
This opinion is contradicted by the packages of measures of the cantons of Zug, Valais and Aargau, which recognize the tax deductibility of additional provisions. This at least implicitly expresses the fact that the question of the date of entry into force is not uncontroversial.
Tax admissibility of "COVID 19 provisions"
Within the framework of cantonal support measures, the Canton of Zug and the Canton of Valais, for example, have decided to make concessions by recognizing additional provisions (COVID-19 provisions) for tax purposes.
In concrete terms, Zug and Valais companies that suffer directly or indirectly from the negative effects of the virus may set aside extraordinary provisions in the 2019 financial year. These provisions must be released again in the 2020 financial year.
The Canton of Aargau also allows additional "COVID-19 provisions" in the 2019 financial year, although no further details are available at present. It can be assumed that other cantons are likely to follow the "COVID-19 provision-model". So far, only the Canton of Schwyz has officially confirmed its contrary position and announced that no additional provisions will be recognized.
In any case, the following must be observed:
- The creation of "COVID-19-provisions" must be analyzed on a case-by-case basis.
- The amount of the provisions allowed for tax purposes is likely to be limited in percentage and/or amount (cantonal differences).
- The recognition of this provision in the 2019 financial statements is only possible as long as these have not yet been completed: if possible, the 2019 financial statements should be kept open.
- If the annual accounts have already been prepared and approved, there is a possibility in certain cantons that the additional provisions may still be taken into account in the tax balance sheet or tax return.
- Ongoing developments in this context must be monitored (including unpublished opportunities).