COVID-19 provision

Auvinen

Hi all

I would like to specify whether the economic consequences of COVID-19 can be taken into account in the 2019 financial statements by booking a special provision?
How it will be treated for tax purposes? Is there anybody who has already submitted the FS with such provision to the tax authorities? Was it accepted? Could you please share your experience?

Thanks!

Lana_S

Most tax administrations in Switzerland are of the opininon that the formation of a COVID-19 provision in 2019 FS does not relate to the 2019 period and is therefore not accepted for income tax purposes. However, certain cantons accept it.
It highly depends on your canton of residence. It means that the experience of entrepreneurs from Thurgau may not be relevant for your company which is located in e.g. Zuerich.
It would be great if you could share your entity details (seat, legal form) in order to receive a precise answer.

Regards,
Lana

Auvinen

Seat: Menzingen, Zug
Legal form: GmbH

Lana_S

The Canton of Zug applies the following requirements:

a COVID-19 provision for tax purposes in the financial statements 2019 up to a maximum of 50% of the net income;
it should not exceed CHF 500'000.

The extraordinary provision created in 2019 must be reversed in the 2020 financial statements.

Regards,
Lana

Auvinen

So if e.g. EBT equals to CHF 100'000, I can post a provision of CHF 50'000 in FY 2019, right?

Lana_S

For tax purposes it would be better to consider a net income as a basis for calculations, not EBT. It means that such provision should not exceed 50% of a profit after tax (excluding extraordinary factors such as capital gains on disposals and revaluation gains).

Regards,
Lana

Auvinen

How should it be correctly reported / presented in the FS? Are there any special requirements?

Lana_S

The COVID-19 provision related posts should be presented as separate line items in the financial statements:

In a balance sheet it should be recognized as e.g. "COVID-19 provision" under short-term liabilities.
In a P&L you can present it as an extraordinary expense e.g. "COVID-19 provision expense".

In notes to the financial statements you can also describe an impact of coronavirus on your business and provide some arguments for the provision to be recognized.