In a decision rendered on October 11, 2016, the Swiss Federal
Supreme Court ("SFSC") ruled that criminal fines and
other financial penalties are not income tax deductible, as they do
not constitute a justified business expense. At the same time, the
Swiss Federal Supreme Court ruled that any illicit profits seized
by foreign or inland courts and/or governmental agencies can be
deducted from corporate taxable income.
In the case at dispute, the European Commission had imposed on a
Swiss company in 2009 a fine of EUR 348'000 due to a various
anti-cartel violations. As a result, the company had taken a
provision in the amount of approximately CHF 460'000. Both the
Tax and the Administrative Courts of the Canton of Zürich
allowed this provision following appeals by the Tax Authorities of
the Canton of Zürich.
The SFSC held that criminal fines and other financial penalties
should not be deductible as the taxpayers as a whole would have to
bear at least a part of the brunt and, therefore, the punitive
effect of the criminal sanction would be undermined. The SFSC also
referred to its judicial practise rendered for the first time in
1944, according to which self-employed business persons cannot
deduct criminal fines and other financial penalties in their income
tax return, so allowing corporate businesses in Switzerland to do
otherwise would result in an undue tax privilege
The highest court in Switzerland reminded the parties of its
long standing income tax practise in the field of briberies by
saying that it would be paradoxical if illicit payments for bribes
could not be deducted, whilst criminal penalties due to a bribery
would become income tax deductible.
Finally, the SFSC held that companies still qualify for income
tax deductions as long as the criminal fines and other financial
penalties encompass judicial and/or governmental seizures of
illicit profits, as these profits had been previously taxed.
The case now goes back to the Administrative Court of the Canton
of Zürich, where the tax paying company will have a chance to
demonstrate that part of the European Commission's fine of EUR
348'000 was aimed at seizing illicit profits gained through the
company's cartelistic activities.
The SFSC's decision of October 11, 2016, is in line with
current legislative action in Switzerland. In December 2015, the
Swiss Federal Government had proposed a bill which deals with the
income tax treatment of criminal penalties, whereby the
government's core proposals correspond with what the SFSC just
Against the background of multibillion fines handed down mainly
by the U.S. Department of Justice against the Swiss banks over the
last 36 months in various criminal and other proceedings, there are
also critical voices in the current Swiss Parliament lobbying for a
wider income tax deductibility of criminal fines, as these U.S.
fines are quite often difficult to be reconciled with
Switzerland's rule-of-law perceptions.
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