Corporate Taxation

Ten-year loss offset period in the consultation process

On 28 June 2023, the Federal Council started the consultation process on the extension of the loss offset period. Today, tax losses carry forward can be offset against profits within the next seven years under income tax law. According to the Federal Council’s proposal, this period is to be extended to ten years.

The reform would be beneficial to all companies and self-employed persons. The offsetting of losses of foreign permanent establishments would also be covered by the reform. In particular, the legislator wants to relieve companies harmed by the pandemic as well as newly established companies.

This reform is to apply only to losses incurred from the tax period 2020 onwards. For losses incurred before then, the currently applicable loss offset period of seven years would continue to apply.

The reform requires an amendment to the federal act on direct federal taxes and the federal act on the harmonization of cantonal and municipal direct taxes. The consultation will last until 19 October 2023. As part of the consultation, the Federal Department of Finance (FDF) would like to clarify, among other things, the potential loss in tax revenues such extension of the loss offset period would entail. The FDF does not yet have any data on this.

In the event of a positive consultation result, a bill should be drafted and submitted to parliament in 2024, which would deal with it in 2024/2025. We assume that the reform would be enacted at the beginning of 2026 after parliamentary debate and a possible referendum. This would ensure that losses incurred from the 2020 tax period onwards can benefit from the ten-year loss offset and that the cantons have sufficient time to implement the reform. Taxpayers with significant loss carryforwards will also be able to reassess their deferred tax assets at that time.