Companies allowed to deduct fines abroad from taxes

Under the compromise proposal, if UBS proved that it acted in good faith in the case of tax fraud in France, it would be able to deduct the hefty fine from its taxes. © Keystone / Gaetan Bally

Parliament has agreed that companies should be able to deduct fines imposed abroad from taxes under certain conditions. This breaks with recommendations from the federal government to tighten tax laws.

On Monday, the House of Representatives approved the compromise proposal from the Senate by 108 to 86 votes, paving the way for it to go for a final vote. The proposal permits companies to deduct penalties imposed abroad from their taxes under two conditions: if the penalties violate the Swiss public order or “if the taxpayer credibly demonstrates that they have taken all reasonable steps to comply with the law”. 

Domestic sanctions and fines are not tax deductible.

Left-wing party members came up short in the vote. Following the final tally, one socialist party memberExternal link commented that the compromise proposal offers “tax subsidies” to companies that act illegally.

The government’s version of the draft did not allow companies to deduct fines imposed abroad from taxes, something that the Senate had also supported early on. However, in December 2019, the Senate agreed to the compromise proposal adopted by the House on Monday.

In early 2019, Swiss bank UBS was sentenced by a French court to pay a fine and damages of €4.5 billion. UBS has appealed the decision.

Based on the proposal, Swiss authorities would have to assess in the case of UBS whether the bank had taken all reasonable steps to act in good faith. If this were the case, the big bank would be allowed to deduct the possible fine from taxes in Switzerland.

To date, there are no explicit rules on whether companies can or can’t deduct fines, penalties and sanctions of a punitive nature from taxes. Practice varied across cantons creating legal uncertainty. This led parliament to draw up legislation.