Extension Of The Swiss Tax Loss Carryforward Period

The referendum period for extending the Swiss tax loss carryforward period expired on 17 April 2026 without a referendum being called. As a result, the corresponding legislative amendments to the Federal Direct Tax Act and the Tax Harmonisation Act will move forward. The entry into force is still to be determined by the Federal Council and is currently expected as of 1 January 2028.

Overview

The extended ten‑year loss carryforward period will apply to losses incurred from the 2020 tax period onwards. Losses arising in earlier tax periods will remain subject to the former seven‑year carryforward limitation.

The reform implements a parliamentary motion aimed at modernising the Swiss loss utilisation regime by extending the tax loss carryforward period from seven to ten years (WAK‑N 21.3001, «Möglichkeit zur Verlustverrechnung auf zehn Jahre erstrecken»). Under the revised rules, tax losses incurred from the 2020 tax year onwards may be offset against future taxable profits over a longer period. The measure is intended to better reflect the constitutional principle of taxation according to economic capacity. It should also facilitate the recovery of businesses affected by the pandemic and may be particularly helpful for start-ups and other companies with longer development cycles before they generate sustainable profits.

Practical impact for taxpayers

For taxpayers, the reform provides increased flexibility and improved opportunities for the utilisation of accumulated tax losses. As losses from the 2020 tax period are the first tax losses that will no longer expire under the former seven-year rule at the end of the 2027 tax period, taxpayers should ensure that such losses are correctly reflected in the 2028 tax return and subsequent periods. The extension may result in the continued usability of losses from the previous tax years 2020 to 2025, which would otherwise have expired between 2027 and 2032 under the previous regime.

Pillar 2 considarations

The extension of the Swiss tax loss carryforward period from seven to ten years is not only a domestic tax policy adjustment but also has relevant implications for groups within scope of Pillar 2. In particular, the changes may affect the treatment of Swiss tax losses under the Qualified Domestic Minimum Top-up Tax (QDMTT) and the recognition of deferred tax assets (DTAs) for Pillar 2 purposes.

Under the GloBE rules, DTAs are generally recognised at the applicable domestic tax rate. For Pillar 2 purposes, DTAs on tax losses are however recast to 15% (unless the domestic tax rate is below 15% and the DTA is not attributable to a GloBE Loss or recognised pursuant to a GloBE Loss Election). The extension of the Swiss loss carryforward period to ten years may:

• Support initial recognition of DTAs that were previously not recognised due to a shorter utilisation horizon; or
• Prevent derecognition of existing DTAs that might otherwise have been written down as losses approached expiry under the seven-year rule.

A notable feature of the reform is its retroactive application to losses incurred from the 2020 tax period onwards. This creates specific timing considerations for Pillar 2 calculations, especially in the transition years:

• Losses from 2020 onwards that would have expired after seven years (i.e. from 2027 onwards) will now remain available for up to ten years.
• As a result, DTAs that might have been impaired or not recognised in earlier Pillar 2 years (e.g. FY 2024-2027) may become recoverable again, depending on the group’s medium-term Swiss profit forecasts.

From a Pillar 2 perspective, an extended loss carryforward period may support stronger DTA recognition under the applicable accounting framework, which can affect deferred-tax adjustments under the GloBE rules. Depending on the mechanism applied, this may mitigate the risk of a low jurisdictional ETR and a resulting QDMTT liability in Switzerland. However, groups should carefully assess:

• Whether the extended carryforward period can be reflected in revised recoverability assessments under the relevant accounting framework; and
• How such reassessments affect Pillar 2 positions, including the impact on jurisdictional ETRs and expected QDMTT outcomes for Switzerland for the year of increases/recognitions and reversals of related DTAs.

Outlook

With the reform now confirmed, its implications, particularly in a Pillar 2 context, require careful and timely consideration. Multinational groups with Swiss entities should review their loss utilisation profiles, deferred tax positions and Pillar 2 modelling to ensure consistent and defensible outcomes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.