The Federal Supreme Court, the practitioner method and barrels without bottom…

It is rare for taxpayers to insist on a higher valuation of their assets. In the case decided by the Federal Supreme Court in its ruling of 19.09.2024 (9C_4/2024), however, this was precisely the case: A AG produces and develops tanning vessels (commonly known as barrels). In 2013, it acquired a stake in D AG, which manufactured the wooden barrels required by A AG and was overindebted, at least in terms of its balance sheet, at that time. The investment was made by converting an existing receivable from D AG in the amount of around CHF 2 million. In the following year, A AG made a value adjustment of CHF 500,000 to the new investment in its annual financial statements under commercial law and reduced its taxable net profit accordingly.

The key issue: the amount of the market value

The cantonal tax office offset this value adjustment, which led to a second set of proceedings that ultimately ended up before the Federal Supreme Court again. The key question to be answered was the market value of the investment in 2013 in order to determine the necessity and amount of a value adjustment in the following year.

Both parties agreed to use the practitioner method for this purpose, but with different results: While the taxpayer used this to justify the entry value of around CHF 2 million, the tax office arrived at around CHF 800 thousand. These differences were due to currency losses, which the taxpayer did not include in the capitalized earnings value calculation as extraordinary expenses. Secondly, it claimed considerable hidden reserves (“wooden barrel technology” sic!), which were intended to increase the net asset value by around CHF 3.5 million.

Both the one and the other were rejected by the tax office and the lower courts. The Federal Supreme Court also followed their reasoning and recognized the offsetting of the value adjustment by the tax office.

Read the full blog post here.