{"id":9551,"date":"2025-10-12T11:48:37","date_gmt":"2025-10-12T09:48:37","guid":{"rendered":"https:\/\/my-swiss-company.com\/?p=9551"},"modified":"2025-11-28T12:15:06","modified_gmt":"2025-11-28T11:15:06","slug":"hidden-reserves-in-switzerland","status":"publish","type":"post","link":"https:\/\/my-swiss-company.com\/en\/hidden-reserves-in-switzerland\/","title":{"rendered":"Hidden Reserves in Switzerland"},"content":{"rendered":"<p>[et_pb_section fb_built=&#8221;1&#8243; theme_builder_area=&#8221;post_content&#8221; _builder_version=&#8221;4.27.4&#8243; _module_preset=&#8221;default&#8221;][et_pb_row _builder_version=&#8221;4.27.4&#8243; _module_preset=&#8221;default&#8221; theme_builder_area=&#8221;post_content&#8221;][et_pb_column _builder_version=&#8221;4.27.4&#8243; _module_preset=&#8221;default&#8221; type=&#8221;4_4&#8243; theme_builder_area=&#8221;post_content&#8221;][et_pb_text _builder_version=&#8221;4.27.4&#8243; _module_preset=&#8221;default&#8221; theme_builder_area=&#8221;post_content&#8221; hover_enabled=&#8221;0&#8243; sticky_enabled=&#8221;0&#8243;]<\/p>\n<h2 style=\"font-weight: 400;\"><strong>Hidden Reserves in Switzerland: Legal Framework, Practices, Transparency and Tax Implications<\/strong><\/h2>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong>1) Definition and core concept of Hidden reserves in Switzerland<\/strong><\/h3>\n<p style=\"font-weight: 400;\">In Switzerland,\u00a0<strong>hidden reserves<\/strong>\u00a0are the gap between the\u00a0<strong>economic value<\/strong>\u00a0of assets\/liabilities and their\u00a0<strong>reported carrying amount<\/strong>. They most often arise from\u00a0<strong>undervaluation of assets<\/strong>\u00a0(additional depreciation, conservative inventory valuation, retention at historical cost) and\/or\u00a0<strong>overvaluation of liabilities\/provisions<\/strong>\u00a0(prudence provisions), in line with the\u00a0<strong>prudence principle<\/strong>. Hidden reserves are\u00a0<strong>explicitly permitted<\/strong>\u00a0under Swiss accounting law and are a national particularity.<\/p>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong>2) Legal basis in the Swiss Code of Obligations (CO)<\/strong><br \/><strong><\/strong><\/h3>\n<p style=\"font-weight: 400;\"><strong>Prudence &amp; measurement.<\/strong>\u00a0Art.\u00a0<strong>960a para. 4 CO<\/strong>\u00a0authorizes\u00a0<strong>additional depreciation and value adjustments<\/strong>\u00a0\u201cto ensure the company\u2019s long-term prosperity\u201d and allows\u00a0<strong>not releasing<\/strong>\u00a0adjustments that are no longer necessary.<br \/><strong>Notes &amp; transparency.<\/strong>\u00a0When the\u00a0<strong>net release<\/strong>\u00a0of hidden reserves has a\u00a0<strong>material positive<\/strong>\u00a0impact on profit, it must be\u00a0<strong>disclosed in the notes<\/strong>. In practice, only the\u00a0<strong>difference<\/strong>\u00a0between reserves released and newly created must be disclosed (a \u201cnetting\u201d effect).<br \/><strong>Official references.<\/strong>\u00a0Presentation, measurement and notes requirements are read together with\u00a0<strong>Arts. 958 et seq. CO <\/strong>(structure, principles),\u00a0<strong>Arts. 960 et seq. CO<\/strong>\u00a0(measurement),\u00a0<strong>Art. 959c CO<\/strong>\u00a0(content of the notes).<\/p>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong>3) How are hidden reserves created?<\/strong><br \/><strong><\/strong><\/h3>\n<p style=\"font-weight: 400;\"><strong>a) Undervaluation of assets<\/strong><\/p>\n<ul style=\"font-weight: 400;\">\n<li>Depreciation\u00a0<strong>beyond<\/strong>\u00a0economic impairment.<\/li>\n<li><strong>Prudent<\/strong>\u00a0inventory valuation (conservative methods, write-downs).<\/li>\n<li>Property, plant and equipment kept at\u00a0<strong>cost<\/strong> despite higher market value.<\/li>\n<\/ul>\n<p><strong>b) Overvaluation of liabilities\/provisions<\/strong><\/p>\n<ol><\/ol>\n<ul style=\"font-weight: 400;\">\n<li><strong>Prudence provisions<\/strong>\u00a0in excess of the expected risk.<\/li>\n<li>Conservative estimates of future obligations.<\/li>\n<\/ul>\n<p style=\"font-weight: 400;\"><strong>Practical summary.<\/strong>\u00a0Hidden reserves result from\u00a0<strong>additional write-downs<\/strong>\u00a0and\/or\u00a0<strong>provisions<\/strong>\u00a0permitted by law; their\u00a0<strong>net positive release<\/strong>\u00a0must be presented in the\u00a0<strong>notes<\/strong>\u00a0when it materially affects profit.<\/p>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong>4) Why do companies use them?<\/strong><br \/><strong>Benefits (SMEs\/SECO).<\/strong><\/h3>\n<ul style=\"font-weight: 400;\">\n<li><strong>Smoothing<\/strong>\u00a0earnings over years.<\/li>\n<li><strong>Buffer<\/strong>\u00a0in difficult periods (loss-absorption capacity).<\/li>\n<li><strong>Implicit self-financing<\/strong>\u00a0and\u00a0<strong>dividend restraint<\/strong>\u00a0(retaining resources).<\/li>\n<\/ul>\n<p style=\"font-weight: 400;\"><strong>Limits\/Risks.<\/strong><\/p>\n<ul style=\"font-weight: 400;\">\n<li><strong>Reduced transparency<\/strong>\u00a0for third parties (banks, investors, creditors).<\/li>\n<li>Potential\u00a0<strong>manipulation<\/strong>\u00a0of reported performance.<\/li>\n<li><strong>Weaker comparability<\/strong>\u00a0between companies and over time.<\/li>\n<\/ul>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong>5) What do frameworks beyond the CO say?<\/strong><\/h3>\n<ul style=\"font-weight: 400;\">\n<li><strong>Swiss GAAP FER<\/strong>\u00a0aims at a\u00a0<strong>true &amp; fair view<\/strong>\u00a0and\u00a0<strong>restricts<\/strong>\u00a0arbitrary hidden reserves. Adopting FER implies\u00a0<strong>greater transparency<\/strong>\u00a0(justified methods, richer disclosures).<\/li>\n<li><strong>SME practice.<\/strong>\u00a0Hidden reserves remain common under the CO, but are\u00a0<strong>more constrained<\/strong>\u00a0under FER (justified provisions, disclosures in the notes).<\/li>\n<li><strong>Doctrine\/Big Four.<\/strong>\u00a0Operational definition: the gap between\u00a0<strong>carrying amounts<\/strong>\u00a0and\u00a0<strong>maximum amounts permitted<\/strong>\u00a0by law; stronger expectations for governance and note disclosures.<\/li>\n<\/ul>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong>6) Transparency: notes and governance<\/strong><\/h3>\n<ul style=\"font-weight: 400;\">\n<li><strong>Notes (CO).<\/strong>\u00a0Disclose the\u00a0<strong>net release<\/strong>\u00a0when it\u00a0<strong>materially increases<\/strong>\u00a0profit.<\/li>\n<li><strong>Governance.<\/strong>\u00a0The board should oversee the\u00a0<strong>prudence policy<\/strong>, the\u00a0<strong>magnitude<\/strong>\u00a0of reserves and their\u00a0<strong>dynamics<\/strong>(creations\/releases), especially around sensitive events (dividends, acquisitions, bank covenants).<\/li>\n<li><strong>Shareholder rights.<\/strong>\u00a0In some cases, a minority can demand additional information; hence the need for\u00a0<strong>internal traceability<\/strong>\u00a0of estimates.<\/li>\n<\/ul>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong>7) Helpful distinctions<\/strong><\/h3>\n<ul style=\"font-weight: 400;\">\n<li><strong>Hidden reserves vs. fluctuation reserves<\/strong>\u00a0(e.g., on securities): fluctuation reserves are\u00a0<strong>open and disclosed<\/strong>; they are\u00a0<strong>not<\/strong>\u00a0\u201chidden\u201d reserves.<\/li>\n<li><strong>Internal vs. published accounts:<\/strong>\u00a0when hidden reserves exist,\u00a0<strong>economic equity<\/strong>\u00a0(internal view) is\u00a0<strong>higher<\/strong>\u00a0than\u00a0<strong>published equity<\/strong>.<\/li>\n<\/ul>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong>8) Tax implications (Geneva \/ RFFA focus)<\/strong><\/h3>\n<p style=\"font-weight: 400;\">Since\u00a0<strong>RFFA<\/strong>\u00a0(01.01.2020), Geneva allows the\u00a0<strong>declaration<\/strong>\u00a0and\u00a0<strong>management<\/strong>\u00a0of\u00a0<strong>hidden reserves<\/strong>\u00a0(including\u00a0<strong>goodwill<\/strong>) when\u00a0<strong>exiting<\/strong>\u00a0privileged tax regimes (or\u00a0<strong>entering<\/strong>\u00a0ordinary taxation). In practice:<\/p>\n<ul style=\"font-weight: 400;\">\n<li><strong>Advance ruling\/confirmation<\/strong>\u00a0by the tax authority.<\/li>\n<li><strong>Tracking<\/strong>\u00a0in the return, with possible\u00a0<strong>deferral\/spread<\/strong>\u00a0of effects.<\/li>\n<li><strong>GeTax\/CSI<\/strong>\u00a0guidance: rules for\u00a0<strong>carryforward<\/strong>\u00a0and\u00a0<strong>limits<\/strong>\u00a0to tax reductions from declared reserves.<br \/><strong>Conclusion:<\/strong>\u00a0anticipate and document to secure the\u00a0<strong>tax treatment<\/strong>.<\/li>\n<\/ul>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong>9) Illustrative example<\/strong><br \/><strong><\/strong><\/h3>\n<p style=\"font-weight: 400;\"><strong>Case.<\/strong>\u00a0An industrial company books\u00a0<strong>additional depreciation<\/strong>\u00a0on machinery and sets up a\u00a0<strong>prudence provision<\/strong>\u00a0for litigation.<br \/><strong>Year N effect.<\/strong>\u00a0Book value of machinery\u00a0<strong>&lt;<\/strong>\u00a0economic value; liabilities\u00a0<strong>&gt;<\/strong>\u00a0expected risk \u21d2\u00a0<strong>hidden reserves<\/strong>\u00a0exist.<br \/><strong>Year N+1 effect.<\/strong>\u00a0Disposal of an asset with a gain and litigation closed at lower cost \u21d2\u00a0<strong>net release<\/strong>\u00a0of hidden reserves,\u00a0<strong>profit increases<\/strong>; include a\u00a0<strong>note disclosure<\/strong>\u00a0if the effect is material.<\/p>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong>10) Good practices (SMEs &amp; groups)<\/strong><\/h3>\n<ul style=\"font-weight: 400;\">\n<li><strong>Document<\/strong>\u00a0the prudence policy (depreciation, provisions), methods and assumptions.<\/li>\n<li><strong>Calibrate<\/strong>: prudence \u2260 arbitrariness; support with\u00a0<strong>tests<\/strong>\u00a0and\u00a0<strong>analyses<\/strong>\u00a0(obsolescence, useful lives, risk matrices).<\/li>\n<li><strong>Monitor the notes<\/strong>: track\u00a0<strong>net releases<\/strong>\u00a0and their effects; avoid\u00a0<strong>surprises<\/strong>\u00a0for stakeholders.<\/li>\n<li><strong>Anticipate taxes<\/strong>\u00a0(RFFA\/cantons):\u00a0<strong>quantify early<\/strong>, secure via\u00a0<strong>rulings\/communications<\/strong>\u00a0with the authority.<\/li>\n<li><strong>Assess FER<\/strong>: if the goal is a\u00a0<strong>true &amp; fair<\/strong>\u00a0presentation (banks, investors),\u00a0<strong>reduce<\/strong>\u00a0hidden reserves and\u00a0<strong>enhance<\/strong>disclosures.<\/li>\n<\/ul>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong>11) Key takeaways<\/strong><\/h3>\n<ul style=\"font-weight: 400;\">\n<li>Hidden reserves are\u00a0<strong>legal<\/strong>\u00a0in Switzerland (Art.\u00a0<strong>960a para. 4 CO<\/strong>) and stem from the\u00a0<strong>prudence principle<\/strong>.<\/li>\n<li>They\u00a0<strong>smooth<\/strong>\u00a0earnings but\u00a0<strong>reduce<\/strong>\u00a0transparency; the CO requires a\u00a0<strong>minimum disclosure<\/strong>\u00a0(net release).<\/li>\n<li><strong>Swiss GAAP FER<\/strong>\u00a0limits the practice: greater\u00a0<strong>justification<\/strong>\u00a0and\u00a0<strong>visibility<\/strong>.<\/li>\n<li>There are\u00a0<strong>tax stakes<\/strong>\u00a0(RFFA\/Geneva):\u00a0<strong>plan<\/strong>\u00a0and\u00a0<strong>document<\/strong>.<\/li>\n<\/ul>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong>Services by My Swiss Company \u2013 Swiss Fiduciary (Accounting &amp; Tax Expertise)<\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">My Swiss Company SA, <a href=\"https:\/\/my-swiss-company.com\/en\/\">Swiss <\/a><\/span><a href=\"https:\/\/my-swiss-company.com\/en\/\"><b>Corporate<\/b> Services Provider<\/a>\u00a0and\u00a0<a href=\"https:\/\/www.rister.ch\/en\/\" style=\"font-weight: 400;\" target=\"_blank\" rel=\"noopener\"><strong>RISTER, Geneva Fiduciary <\/strong><\/a>support SMEs and groups in\u00a0<strong style=\"font-weight: 400;\">designing, managing and auditing<\/strong>\u00a0hidden reserves at the intersection of the\u00a0<strong style=\"font-weight: 400;\">CO \u2013 Swiss GAAP FER \u2013 cantonal taxation<\/strong>:<\/p>\n<ul style=\"font-weight: 400;\">\n<li><strong>Accounting &amp; reporting:<\/strong>\u00a0depreciation policies, inventory measurement, provisions (models, controls, CO notes).<\/li>\n<li><strong>Framework conversion:<\/strong>\u00a0<strong>CO \u2192 Swiss GAAP FER<\/strong>, gap analysis, transition plan, in-house training.<\/li>\n<li><strong>Transactions &amp; M&amp;A:<\/strong>\u00a0hidden-reserve due diligence (earnings quality, EBITDA normalization, purchase price adjustments).<\/li>\n<li><strong>Tax:<\/strong>\u00a0<strong>RFFA<\/strong> dossiers (Geneva &amp; other cantons), advance rulings, GeTax\/CSI follow-up, impact modelling, <a href=\"https:\/\/my-swiss-company.com\/en\/our-services\/tax-representative-for-vat-in-switzerland\/\">Swiss VAT reportings<\/a>.<\/li>\n<li><strong>Governance &amp; internal control:<\/strong>\u00a0estimation policies, audit trails, review committees, preparation for lender reviews.<\/li>\n<\/ul>\n<p style=\"font-weight: 400;\">\ud83d\udc49 Contact us for an\u00a0<strong>express diagnostic (2\u20133 hours)<\/strong>: mapping of hidden reserves,\u00a0<strong>transparency risks<\/strong>\u00a0and\u00a0<strong>value-creation levers<\/strong>\u00a0(financial reporting, bank negotiations, M&amp;A).<\/p>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong><\/strong><\/h3>\n<h3 style=\"font-weight: 400;\"><strong>FAQ \u2013 Hidden Reserves in Switzerland<\/strong><\/h3>\n<p style=\"font-weight: 400;\"><strong>Q1. Are hidden reserves permitted?<\/strong><br \/>Yes. The\u00a0<strong>CO (Art. 960a para. 4)<\/strong>\u00a0permits additional adjustments and the non-release of adjustments that are no longer necessary, in the spirit of\u00a0<strong>prudence<\/strong>.<\/p>\n<p style=\"font-weight: 400;\"><strong>Q2. Must they be disclosed in the financial statements?<\/strong><br \/>Their\u00a0<strong>creation<\/strong>\u00a0is not published. However, a\u00a0<strong>net release<\/strong>\u00a0that\u00a0<strong>materially increases<\/strong>\u00a0profit must be\u00a0<strong>disclosed in the notes<\/strong>.<\/p>\n<p style=\"font-weight: 400;\"><strong>Q3. Are hidden reserves allowed under Swiss GAAP FER?<\/strong><br \/>FER targets a\u00a0<strong>true &amp; fair view<\/strong>\u00a0and\u00a0<strong>restricts<\/strong>\u00a0arbitrary hidden reserves. Prudence can be maintained when\u00a0<strong>justified<\/strong>, with\u00a0<strong>stronger disclosures and documentation<\/strong>.<\/p>\n<p style=\"font-weight: 400;\"><strong>Q4. What are the main risks?<\/strong><br \/><strong>Reduced transparency<\/strong>,\u00a0<strong>limited comparability<\/strong>, and potential\u00a0<strong>concerns<\/strong>\u00a0from lenders\/auditors in case of unusual magnitudes or opportunistic creation\/release cycles.<\/p>\n<p style=\"font-weight: 400;\"><strong>Q5. How do they interact with tax (Geneva\/RFFA)?<\/strong><br \/>When\u00a0<strong>exiting<\/strong>\u00a0a privileged tax status (or\u00a0<strong>entering<\/strong>\u00a0ordinary taxation), certain hidden reserves (incl.\u00a0<strong>goodwill<\/strong>) may be\u00a0<strong>declared<\/strong>. The procedure should be\u00a0<strong>planned<\/strong>\u00a0and\u00a0<strong>documented<\/strong>\u00a0to secure\u00a0<strong>deferral<\/strong>\u00a0and\u00a0<strong>deductibility<\/strong>.<\/p>\n<p style=\"font-weight: 400;\"><strong>Q6. How should an SME start in practice?<\/strong><\/p>\n<ol style=\"font-weight: 400;\">\n<li><strong>Inventory<\/strong>\u00a0prudence areas (PPE, inventories, provisions).<\/li>\n<li><strong>Quantify<\/strong>\u00a0the economic vs carrying amount gap.<\/li>\n<li>Formalize a\u00a0<strong>policy<\/strong>\u00a0(thresholds, useful lives, methods).<\/li>\n<li>Prepare a\u00a0<strong>note template<\/strong>\u00a0for net releases.<\/li>\n<li>Anticipate\u00a0<strong>tax effects<\/strong>\u00a0and\u00a0<strong>communication<\/strong>\u00a0with banks\/third parties.<\/li>\n<\/ol>\n<p>[\/et_pb_text][\/et_pb_column][\/et_pb_row][\/et_pb_section]<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In Switzerland, hidden reserves are the gap between the economic value of assets\/liabilities and their reported carrying amount. They most often arise from undervaluation of assets (additional depreciation, conservative inventory valuation, retention at historical cost) and\/or overvaluation of liabilities\/provisions (prudence provisions), in line with the prudence principle. Hidden reserves are explicitly permitted under Swiss accounting law and are a national particularity.<\/p>\n","protected":false},"author":3,"featured_media":9541,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"","_et_gb_content_width":"","inline_featured_image":false,"footnotes":""},"categories":[],"tags":[51],"class_list":["post-9551","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","tag-en"],"_links":{"self":[{"href":"https:\/\/my-swiss-company.com\/en\/wp-json\/wp\/v2\/posts\/9551","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/my-swiss-company.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/my-swiss-company.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/my-swiss-company.com\/en\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/my-swiss-company.com\/en\/wp-json\/wp\/v2\/comments?post=9551"}],"version-history":[{"count":1,"href":"https:\/\/my-swiss-company.com\/en\/wp-json\/wp\/v2\/posts\/9551\/revisions"}],"predecessor-version":[{"id":10185,"href":"https:\/\/my-swiss-company.com\/en\/wp-json\/wp\/v2\/posts\/9551\/revisions\/10185"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/my-swiss-company.com\/en\/wp-json\/wp\/v2\/media\/9541"}],"wp:attachment":[{"href":"https:\/\/my-swiss-company.com\/en\/wp-json\/wp\/v2\/media?parent=9551"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/my-swiss-company.com\/en\/wp-json\/wp\/v2\/categories?post=9551"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/my-swiss-company.com\/en\/wp-json\/wp\/v2\/tags?post=9551"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}