New Stock Corporation Law - Application for the Appropriation of Losses as Part of the Annual Financial Statements

On 1 January 2023, the new provisions on the Swiss corporation law came into force. Whereas until now, in the event of a loss, a proposal for the appropriation of losses (analogous to the proposal for the appropriation of profits) was often as part of the annual financial statements, from 2023 this will probably no longer be possible without negative (tax) consequences.

Art. 674 CO now stipulates that annual losses incurred must be offset against the following balance sheet items in this order: 

1) the profit carried forward;

2) the voluntary retained earnings;

3) the legal profit reserve;

4) the legal capital reserve.

Paragraph 2 of the aforementioned article states that instead of offsetting losses against the reserves (primarily the capital contribution reserves are decisive here), losses may also be carried forward in part or in full to the new annual financial statements. Until now, this has been common practice even without an application for the appropriation of losses. In particular, an automatic offsetting of loss carryforwards against capital contribution reserves would have significant tax disadvantages, as the capital contribution reserves could no longer be returned to the shareholders tax-free. It is important to note, however, that the loss carryforwards can still be used for tax purposes, even if the losses were offset against the reserves.

Even though it remains to be seen in practice how strictly the FTA will apply this article of the law, we recommend that, in the event of a loss situation, a loss utilization request should always be prepared and that the general meeting should resolve to carry forward the loss to the new financial year. In this way, it can be avoided that the FTA offsets losses against the capital contribution reserves.