Fines with punitive character for legal entities are non-deductible


By decision of 11 November 2009, the European Commission imposed a fine in the amount of € 348'000 on a Swiss corporation. The Federal Supreme Court had to decide whether or not this fine could be deducted from taxes in Switzerland.


The verdict is based on the following facts:

X. AG took over the coordination and administration of joint activities/agreements for a group of companies in connection with pricing in the respective industry. In its verdict, the EU Commission found that X. AG has carried out administrative activities in the context of cartel agreements for remuneration. In particular, it organised meetings of the cartel members, provided meeting rooms, prepared minutes and statistics, calculated and monitored delivery quantities or rather quota agreements and acted as a mediator in the event of tensions among the cartel members. On the basis of these activities, the EU Commission fined X. AG.

In anticipation of the threatened fine, the corporation formed provisions which were recorded as operating expenses in the financial statements. These provisions were not recognized by the Tax Office of the Canton of Zurich and were set off in the relevant assessment. An appeal against the assessment order of the Cantonal Tax Office was unsuccessful. The taxpayer then filed an appeal with the Zurich Tax Appeal Commission, which approved the appeal by decision of 20 December 2013. The Cantonal Tax Office appealed against this decision to the Administrative Court of Zurich, which upheld the decision of the Tax Appeals Commission. The Cantonal Tax Office filed an appeal with the Federal Supreme Court against the decision of the Administrative Court of Zurich.

By decision of 26 September 2016 (2C_916, 917/2015), the Federal Supreme Court accepted the appeal and redirected the case to the Administrative Court of Zurich for reassessment. In its consideration, the Federal Supreme Court differentiates between fines with or without punitive character.

In accordance with the authoritative principle, the balance sheet compliant with commercial law is authoritative for the tax balance sheet, as long as there are no fiscal correction regulations. However, these correction regulations are not exhaustively listed in the law. The Federal Supreme Court uses this scope for interpretation in this ruling on the following grounds. According to the Federal Supreme Court's reasoning, fines and other financial penalties of a punitive nature are not deductible from tax. The Federal Supreme Court refers to the principle of the uniformity of the legal system, which requires that the various areas of law cooperate as consistently as possible. In accordance with this principle, the Federal Supreme Court establishes non-deductibility as follows;

that a sanction imposed would be effectively mitigated by tax law. The reduction in taxable net income and the resulting tax on profits would result in a portion of the fine being borne indirectly by the community." (E. 7.3)

Thus, criminal law should not suffer any undesirable influence from tax law and furthermore, it does not correspond to the intention of the legislator that the punitive effect could be undermined by the deductibility. 

The Federal Supreme Court considers fines and other financial penalties which serve to create profit to be justified in business terms and thus deductible. On the grounds that this type of sanction is in no way punitive, but merely a rectification of the unlawful state.

In this case, the Zurich Administrative Court has to re-examine the case and clarify whether the fine imposed by the European Commission contains a punitive character that would prohibit deductibility.