1. Context and recent key developments 

In Switzerland, corporate income tax is generally assessed by reference to the entity’s statutory stand‑alone annual accounts prepared under the Swiss Code of Obligations (the “CO”). This is the so‑called principle of authoritative accounts (“tax follows book”). In certain cases, companies may also be required (or entitled) to prepare financial statements under a recognized financial reporting standard (e.g., Swiss GAAP FER/RPC or IFRS) in addition to the CO accounts. The tax‑follows‑book principle is not absolute: Swiss tax law contains corrective rules allowing the authorities to adjust the accounting result, notably where expenses are not commercially justified for tax purposes or where income is not recorded in the P&L. Accordingly, the chosen CO accounting treatment can materially affect the tax outcome and may trigger tax add‑backs even if the booking is commercially permissible.

In decision 9C_625/2023 (19 February 2025), the Swiss Federal Supreme Court addressed the tax deductibility of value fluctuation reserves booked in statutory accounts where listed securities are measured at market value under art. 960b CO. It confirmed that such reserves are not automatically effective: neutralising market gains is not deductible where it merely reflects a general risk of future price losses. The Court further indicated that cantons may tolerate flat‑rate approaches in practice, but they are not required to do so, so cantonal practice may remain uneven and could evolve following the decision. 

2. Statutory accounting framework (CO) for listed securities 

Swiss statutory accounts are prepared under the CO. For audited entities, auditors commonly rely on the Swiss Auditing Manual (MSA) as practical guidance to apply and document compliance with CO requirements.

Listed securities can be accounted for in two main ways under the CO, depending on whether the company elects the market value option described below. 

2.1. Cost-based approach (historical cost) (art. 960a CO)

Under a cost-based (historical cost) approach, unrealised gains on listed securities are not recognised in the statutory profit and loss account. Value losses are recognised when they arise, typically via an impairment or value adjustment booked to the P&L.

This approach therefore keeps unrealised market movements out of the statutory P&L, while still requiring losses to be reflected when they arise. Please kindly note that any losses in value which are no longer justified should lead to a dissolution of the impairment/provision previously booked

2.2. Market value election and value fluctuation reserve (art. 960b CO)

Listed securities, and assets having a current price observable on an active market, may be measured at market value at the balance sheet date, even if this exceeds acquisition cost. This is an option, not an obligation. If elected, it must be applied consistently to all assets within the same balance-sheet line item and disclosed in the notes.

The notes must also present separately the total amount of assets measured at an observable market value, distinguishing securities from other assets. 

Where this market value election is applied, the CO also allows a value adjustment commonly referred to as a value fluctuation reserve to be recognised through the P&L to reflect future volatility. This adjustment is strictly limited and must not reduce the carrying amount below acquisition cost (or, if lower, the observable market price). The total amount of fluctuation reserves must be presented separately, either on the balance sheet or in the notes. 

The entity may subsequently discontinue the market value option, provided that the change is duly justified and disclosed as a change in accounting policy. In accordance with the principle of permanence of accounting methods as set out in MSA Tenue de la comptabilité, Part II.3.3.4.6, such a change in valuation method requires a consistent application to both the current financial year and comparative prior periods, implying a retrospective restatement of the financial statements as if the new method had always been applied. Upon discontinuation, the assets concerned must again be measured at acquisition cost less any necessary impairments. Any existing value fluctuation reserve must be fully released, with the resulting impact recognised in the income statement.

Where the market value at the date of discontinuation is below acquisition cost, an impairment must be recognised in accordance with the lower‑of‑cost‑or‑market principle, with corresponding effects reflected consistently in both the current and prior year figures.

3. Current tax treatment and cantonal practice 

The 2025 Federal Supreme Court decision makes clear that the tax result is driven by the accounting mechanics used when listed securities are measured at market value under art. 960b CO and a fluctuation reserve is recognised through the P&L. In such cases, the key tax question is whether the charge reflects a concrete and measurable loss risk at the balance sheet date, rather than a generic buffer for future market volatility. 

While the decision clarifies the conditions under which a fluctuation reserve may be tax‑effective, it nevertheless leaves room for different administrative approaches in practice. The assessment of whether a fluctuation reserve is sufficiently substantiated continues to depend on how the competent tax authorities exercise their discretion. As a result, practical outcomes may still differ, and the approach may continue to evolve.

The sections below illustrate this through selected cantonal examples.

3.1. Selected cantonal approaches in practice

• Zurich: is generally viewed as adopting a restrictive approach. In practice, fluctuation reserves on listed securities measured at market value are not accepted as tax‑effective where they merely neutralise unrealised gains or reflect general market volatility. Absent a specific and measurable loss risk existing at the balance sheet date, such reserves are typically added back for tax purposes.
• Lucerne: applies a prescriptive, percentage‑based approach. Its published guidance accepts fluctuation reserves for tax purposes up to 10% of the securities portfolio value at balance sheet date (based on market value or another observable market price) without specific substantiation. Amounts exceeding this threshold must be supported by a concrete risk analysis and appropriate documentation.
• Zug: By contrast, Zug does not apply a fixed percentage safe harbour. Its approach is principle‑based. Where listed securities are measured at market value, a fluctuation reserve is generally limited to the amount of the upward revaluation recognised in the same period, resulting in a net‑zero effect for that period. Emphasis is placed on consistency of application, compliance with the CO floor (no reduction below acquisition cost or the lower observable market price), and separate disclosure of the fluctuation reserve, either on the balance sheet or in the notes.
• Geneva: does not appear to apply a widely published quantitative safe harbour comparable to Lucerne’s explicit 10% threshold. In practice, the treatment of fluctuation reserves tends to be assessed on a case‑by‑case basis. Where the amounts involved are material, seeking a tax ruling is often considered to manage uncertainty, although acceptance cannot be guaranteed.

4. Recommendations

4.1. Preferred solution – Historical cost

Where feasible, and since incorporation, the most robust approach is to apply historical cost accounting method under the CO for listed securities, with impairments recognised where required and impairment dissolved when no longer justified.

This approach avoids recognising unrealised gains in the statutory P&L and therefore largely sidesteps the tax controversy highlighted by the recent Federal Court decision, which primarily arises where market value accounting is combined with fluctuation reserves. Realised gains remain taxable upon disposal.

4.2. Alternative solution (where market value accounting is required or already applied)

4.2.1. If the market value accounting is required 

Where listed securities are required to be measured at market value under art. 960b CO, the accounting and tax position should be designed to minimise controversy rather than to neutralise unrealised gains mechanically.

This requires strict compliance with CO requirements (uniform application within the balance‑sheet item and appropriate disclosure) and treating any fluctuation reserve as a narrowly substantiated adjustment. In practice, the reserve should be aligned with recognised cantonal approaches where relevant and supported by documentation demonstrating consistency of application, compliance with the CO floor, and the presence of a concrete and measurable risk rather than a general market‑volatility rationale.

4.2.2. If the market value accounting is already applied

From a tax standpoint, reverting to historical cost accounting under art. 960a CO is generally the most robust solution, as it eliminates the recurring risk of tax add‑backs linked to fluctuation reserves on listed securities.

However, such a change may have material immediate tax consequences. In particular, the discontinuation of market value accounting requires the full release of any existing value fluctuation reserve through the income statement, which will typically result in a one‑off increase in taxable profit in the year of change, in accordance with the authoritative accounts principle.

Accordingly, while reverting to historical cost reduces tax uncertainty going forward, it may trigger a significant upfront tax cost. This trade‑off should be carefully assessed, notably considering the amount of the reserve, the availability of tax loss carryforwards and the overall tax profile of the company.

Against this background, the choice between historical cost and market value accounting should be assessed not only from an accounting perspective, but also considering the resulting tax risk profile and the relevant cantonal practice. RSM tax and accounting team is at your disposal to discuss these options and review them on a concrete case if required.