Corona pandemic and its impact on taxpayers in Switzerland


The Corona pandemic has the world firmly in its grip, including Switzerland. In this Newsflash we would like to give you a brief overview of some consequences of the Corona pandemic for you as a taxpayer.

1. General Measures

In light of impending liquidity shortages, both the Federal Tax Administration ("FTA") and the cantonal tax administrations have taken various countermeasures. These measures are designed to ensure that taxpayers are not burdened with additional tax matters in already difficult times.

For example, the deadlines for filing the 2019 tax returns have been extended. In this context, it should be made clear that any deadlines for appeals are not covered by these extensions. However, some cantons have indicated that they consider the Corona crisis as a reason for restoring an already expired deadline for appeal. In addition, they have either waived or reduced the interest on late payments. Nonetheless, contrary to some cantons like Geneva who decided to postpone the notification of federal, cantonal and municipal direct tax decisions until 30 April 2020, the FTA indicated that it will continue to notify their decisions despite the Corona pandemic, in particular with regard to VAT and withholding tax. Finally, requests for deferral and waiver of taxes that have already been invoiced will be treated favorably.

Due to the diversity of cantons, the concrete measures available in your canton of residence or domicile may differ. If you need more information on the measures taken by a specific canton, we are pleased to be at your disposal. The FTA maintains a web page that lists its publications linked to the COVID-19 as well as frequently asked questions. In the following, we would like to address some special questions both for corporate and individual taxpayers.

2. Corporate Taxpayers

2.1 Value Adjustments and Provisions due to COVID-19

From a tax law perspective, two questions are connected with value adjustments and provisions due to COVID-19. Firstly, the question arises whether value adjustments and provisions based on COVID-19 are recognized as such, and if so, whether or to what extent these expense postings can already be made in the 2019 financial statements.

When answering these questions, the so-called authoritative principle (Massgeblichkeitsprinzip) must be taken into consideration. According to this principle, the annual financial statements prepared in accordance with commercial law serve as the basis for determining the taxable profit of a business. Deviations from the financial statements are only possible if a tax adjustment provision applies. From a commercial law point of view it should be undisputed that value adjustments as well as provisions in connection with COVID-19 are possible in the current business year, i.e. 2020. The more decisive question is whether or not these can already be taken into account in the 2019 annual financial statements. This approach would require that the Corona crisis already had its cause in 2019. Such an argumentation is not impossible, but may be difficult to assert, since the crisis did not break out until January 2020 in Europe. At best, however, it will be possible to make additional value adjustments or create provisions as instruments to ensure the long-term prosperity of the company, as provided for in Art. 960a para. 4 CO and Art. 960e para. 3 no. 4 CO. Although from a strict tax perspective, such provisions are usually not considered commercially justified, few cantons (Aargau, Thurgau, Valais and Zug) have already announced that they will recognize provisions in connection with COVID-19 for tax purposes in 2019, whereas other cantons (St. Gallen and Schwyz) have explicitly stated that they will not recognize such provisions. It is therefore advisable to examine whether such measures can be applied in each specific case.

2.2 Change of the Place of Effective Management and Permanent Establishment Risk due to Home Office Activities

Corporate taxpayers are generally taxable at their statutory domicile. However, this only applies as long as the place of effective management is not carried out at another place. The place of effective management is principally located at the place where the members of the management are working and where the more decisive day-to-day business decisions are taken. If the employees entrusted with the management no longer exercise their management decisions at the company's statutory domicile, but at their place of residence, the place of effective management could hence be transferred to the place of residence of one of the members of the management and a corresponding (even if only temporary) tax liability of the company could be established there. It can be assumed that, at least in an inter-cantonal relationship, such a view would not be taken, because of the pure temporary home office activity caused by COVID-19. More difficult to assess is the situation in an international relationship, i.e. if management decisions are now no longer made in Switzerland but abroad. Although in this situation, in our view, it would not be possible to argue that the place of effective management is now located at the place of residence of an executive officer, some countries may take another position. This aspect must be kept in mind in particular if the Corona crisis is to last for a longer period of time or if employees (doing the day-to-day business of the company) still work on a daily basis from home after the Corona crisis. What seems to be clear is that the financial requirements caused by the Corona crisis are more likely to create an incentive to generate additional tax revenues. From a Swiss perspective, it is very important to prevent any change of place effective management to a foreign state as it could mean an immediate taxation on the goodwill and any hidden reserves as the full tax liability of a company may end with a change of the place of effective management.

In addition to their statutory domicile or the place of effective management, corporate taxpayers are also taxable where they maintain permanent establishments. A permanent establishment is always deemed to exist if there is a fixed place of business in which the business activities of a company are carried out in whole or in part. Home offices are generally suitable for fulfilling both of these conditions. However, the existence of a permanent establishment presupposes a certain permanency. In this respect it can be assumed that the temporary home office activity caused by COVID-19 will not establish a permanent establishment. However, it is also true that a possible permanent establishment risk must be examined more closely, especially in an international context and if the home office activities should last longer.

3. Individual Taxpayers

3.1 Social Security Affiliation within EU/EFTA

Due to the COVID-19 pandemic, more and more companies are advising their employees to work temporarily from home if possible. In cross-border settings, this leads to the question if the increased home office work could have an impact on the social security affiliation. Namely, if this temporary situation could cause a change of the applicable social security scheme from the country where the work is usually performed to the country of residence.

Swiss and EU/EFTA citizens who work in different EU/EFTA member states are only subject to social security contributions in one member state. As a principle, social security contributions are payable in the member state where the employment is carried out. If an individual is normally working in two or more member states, the residency state prevails if more than 25% of the work is performed there. For the determination of the applicable social security scheme, self-employed activities are considered subordinate to dependent activities and marginal activities being less than 5% are not taken into consideration (exception for Swiss board memberships which are never considered to be marginal).

Increased home office activities due to the COVID-19 outbreak do however not count as "normal" place of work and the provisions for multi-state workers do not strictly apply. The temporary home office is seen as a result of the current exceptional economic situation and the special provisions for assignments apply. Therefore, the individuals concerned in general remain subject to the social security legislation of their normal working state although the work in the residency state might temporarily increase 25% due to the extraordinary circumstances. The Swiss federal social security authorities share this view and informed that it is not necessary to request forms A1 for such cases. The Swiss AHV administration offices and the authorities of the neighboring countries have been informed accordingly.

3.2 Home Office Expenses

Work related costs which are not reimbursed by the employer are tax deductible if they are required to achieve the employment income. Taxpayers can opt for a lump-sum deduction or can deduct their effective costs if they are higher. This might well be the case in 2020 due to increased home office activity. Usually, home office expense deductions are only granted by the tax administration if a substantial part of the work is regularly carried out in the home office and if the employer does not provide a suitable office space (i.e. costs for voluntary work from home are not deductible). Based on federal court law, a further criterion for the deduction of effective home office expenses is that the work is carried out in a designated separate room which only serves for work purposes. This means, that a deduction is normally not granted by the tax administration if the home office is as well used for private purposes or if the work is carried out in the living room.

The calculation mechanism of effective home office costs differs among the cantons. In general proportional expenses for the rent, heating, electricity and cleaning can be considered. A common formula is the following: (deemed) rental income / number of rooms + 1 or 2.

We are of the opinion that the strict criteria for the application of an effective home office expense deduction should be loosen up if home office work is required due to the COVID-19 pandemic. Employees who must work from home during these times or who do so as a precautionary measure should be granted a home office deduction even if they have an office space at the employer location. We are confident that the tax administrations will take this extraordinary situation into account when assessing the 2020 tax returns.

3.3 Cross-Border Workers

In the particular context of the Corona pandemic, a lot of French cross-border commuters are now working from home. Thus, the French cross-border workers who are normally taxed in Switzerland could be taxed in France for the time they work at home in France. However, the French authorities have announced that keeping cross-border workers at home does not have any consequences on their tax regime in this situation of force majeure. As a result, French cross-border workers remain taxable in Switzerland despite their home office activities.


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