Corporate income tax: late balance sheet correction, burden of proof, and protection of good faith

Swiss Federal Supreme Court, 06.03.2026, 9C_203/2025

Facts

A.________ AG filed its tax returns for the 2016 and 2017 tax years in 2019. Following tax adjustments, the St. Gallen Cantonal Tax Administration (hereinafter: the Administration) set the taxable net profit at CHF 59,600 for 2016 and CHF 389,100 for 2017.

The company filed an objection and submitted new annual accounts for 2016 and 2017 during the proceedings. The Administration rejected the objection, classifying the submission of these new accounts as an "inadmissible balance sheet amendment." Furthermore, it reassessed the situation for 2016, determining that provisions for warranty work of CHF 250,000 were not commercially justified, and added CHF 239,062 to the profit. The taxable net profit was thus increased to CHF 259,100 for 2016 and CHF 387,500 for 2017, for cantonal and municipal taxes as well as for direct federal tax.

The company's successive appeals to the Administrative Appeals Commission and subsequently to the Administrative Court of the Canton of St. Gallen were rejected. The company then filed a public law appeal with the Federal Supreme Court, primarily contesting the 2016 tax assessment.

Legal Analysis

The Federal Supreme Court reiterates the fundamental principles governing the determination of taxable profit for legal entities.

1. Principle of authoritative accounting (Massgeblichkeitsprinzip): In accordance withArt. 58 para. 1 DBTA, taxable net profit is determined based on the commercial balance sheet, prepared in accordance with the rules of the Code of Obligations (Art. 957 CO). Tax law is based on commercial law, except where tax law provides for express deviations.

1. Distinction between balance sheet correction and amendment: Jurisprudence and legal doctrine distinguish between two types of accounting adjustments:
   1. A balance sheet correction (Bilanzberichtigung) consists of replacing an entry that does not comply with commercial law with one that does. Such a correction is not only possible but mandatory as long as the tax assessment has not become final. It may be carried out ex officio by the tax authority and may work to the taxpayer's advantage or disadvantage.

1. A balance sheet amendment (Bilanzänderung) consists of replacing an entry that complies with commercial law with another entry that also complies. In principle, such an amendment is only permitted until the tax return is filed. A subsequent amendment during the assessment procedure is only accepted in highly exceptional cases, particularly in the event of an excusable error by the taxpayer regarding the tax consequences of their entries. Amendments motivated solely by a desire for tax optimization or to offset adjustments made by the administration are excluded.

1. Burden of proof (Beweislast): In tax proceedings, the principle of official investigation applies (Art. 123 para. 1 DBTA), requiring the authority to establish the facts ex officio. This obligation is, however, tempered by the taxpayer's duty to cooperate. If a relevant fact cannot be proven, the allocation of the (objective) burden of proof follows the "theory of norms": the tax authority must prove the facts that establish or increase the tax liability, while the taxpayer must prove the facts that exempt them or reduce their tax burden.Art. 8 CC by analogy).

1. Protection of good faith (Vertrauensschutz): Anchored in Art. 5 para. 3 and Art. 9 Cst., this principle protects an individual's reliance on a specific assurance or information provided by a competent authority. For it to apply, several cumulative conditions must be met: the authority must have provided an assurance, the individual must not have been able to detect its inaccuracy, the individual must have relied on this assurance to take actions that cannot be reversed without prejudice, and the legislation must not have changed in the meantime.

Application to the specific case

The dispute concerns the authorities' refusal to accept the corrected 2016 annual accounts submitted by the appellant in 2022.

The appellant admits that the warranty provisions initially recorded were not justified. However, it argues that the correction was intended to record personnel expenses (salaries paid to another company, B.________ AG) that had been omitted from the initial balance sheet. It claims this was an admissible balance sheet correction (Bilanzberichtigung) intended to rectify an entry that violated commercial law.

The Federal Supreme Court, confirming the analysis of the lower court, rejects this argument. It notes that the appellant failed to fulfill its duty to cooperate and did not meet its burden of proof. It provided no probative documents (employment contracts, pay slips, detailed proof of payment) to establish the reality, amount, and commercial basis of the personnel expenses it claims to have incurred. In the absence of proof of these expenses, it is impossible to conclude that the initial balance sheet was non-compliant with commercial law. Consequently, the attempt to modify the accounts in 2022 cannot be classified as a correction, but constitutes a late and therefore inadmissible balance sheet amendment (Bilanzänderung).

The appellant also invokes the protection of good faith, claiming that the tax commissioner had agreed to the correction of the accounts during a meeting. The Federal Supreme Court also dismisses this claim. On one hand, the existence of a formal and binding assurance from the commissioner is doubtful. On the other, and decisively, the appellant did not take any irreversible and prejudicial action based on this alleged assurance. Above all, even if an agreement had been given, it would not change the fact that the alleged personnel expenses were not proven. An assurance from the authority cannot compensate for the lack of proof of a deductible expense. The lower court's refusal to hear a witness on this matter therefore does not violate the right to be heard, as such testimony could not have influenced the outcome of the dispute (anticipatory assessment of evidence).

Outcome

The Federal Supreme Court dismisses the appeal to the extent that it is admissible. The legal costs are charged to the appellant company. The request for installment payments, not being the subject of the dispute, is declared inadmissible. The request for suspensive effect becomes moot with the rendering of the judgment.

Silex tax newsletter published in collaboration with Anna Vladau, Attorney at Law