The Missed Accrual That Inflated Taxable Profit by CHF 130,000

Year-end accruals are not a complex accounting concept, but they are missed often enough that they produce real tax costs. Under Swiss accounting law, an expense incurred in a financial year must be recognised in that year — regardless of when the invoice arrives or when payment is made. When an AG closes its December accounts without accruing expenses that are economically attributable to the year, taxable profit is overstated. Provisional tax is paid on that inflated figure, and the correction — if it comes — arrives months or years later at a compensatory interest rate (2.0%) that does not compensate for the cost of the money advanced. This case study follows a Zug AG that missed two material year-end accruals and paid the price.

The Starting Position

Becker Precision AG is a 12-person precision engineering company in Zug, incorporated in 2018. The company operates on a calendar year. For the 2023 financial year, the management had a productive fourth quarter and the pre-year-end profit estimate suggested taxable income of approximately CHF 280,000 — significantly above the provisional tax base set by the Steuerverwaltung Zug.

The company's accounts were prepared by a part-time accountant. Annual accounts were finalised in late March 2024 and submitted to us for tax return preparation. When we reviewed the draft accounts, two items stood out immediately: a December staff bonus of CHF 80,000 that had been approved by the board in December but not paid until January 2024, and a management consulting fee of CHF 50,000 for Q4 advisory work where the invoice had been issued in January 2024.

Neither expense had been accrued. Both were posted in the January 2024 accounts as the invoices and payment orders arrived.

The Accounting Obligation: OR Art. 958c

Swiss accounting law is clear. Art. 958c OR establishes the Abgrenzungsprinzip — the accrual principle — as a core element of proper accounting. Expenses must be allocated to the period in which they are economically incurred. The principle applies regardless of the payment date or invoice date.

For the December bonus, the economic incurrence was clear: the board had resolved the bonus in December, the employees had earned it through December performance, and there was an obligation on 31 December 2023. The payment date of January 2024 is irrelevant — the expense belongs to 2023.

For the consulting fee, the services had been provided throughout Q4. The fee related to a fixed-scope engagement running October to December 2023. The January invoice date does not change when the services were rendered — the expense accrues across Q4 and belongs in 2023.

Swiss tax law follows commercial accounting under the Massgeblichkeitsprinzip (the authoritative financial statement principle, Art. 63 DBG): what appears in the statutory accounts is, with limited adjustments, the basis for tax. An expense not in the accounts is not deducted from taxable income. Both accruals had to be backdated — which required reopening and restating the 2023 annual accounts.

The Provisional Tax Dimension

Canton Zug assesses provisional corporate income tax (Bezugssteuer) based on the prior year's taxable profit, with quarterly instalment payments. For 2023, the provisional base had been set at CHF 210,000 (based on 2022 results). The company had made four quarterly provisional tax payments totalling approximately CHF 24,885 (11.85% effective on CHF 210,000).

With the corrected taxable profit of CHF 150,000, the actual tax liability was approximately CHF 17,775. The company had overpaid provisional tax by approximately CHF 7,110. This overpayment would be refunded with compensatory interest — but at 2.0% per annum, not the 4.0% that would have applied if the situation were reversed (underpayment). The refund arrives only after the final tax assessment, which in Canton Zug typically takes 12–18 months after the tax return is filed.

The asymmetry in interest rates is a structural feature of Swiss provisional tax: underpayment costs 4.0% p.a.; overpayment earns only 2.0% p.a. Companies with volatile profits — or those whose year-end closes before all expenses are identified — systematically overpay provisional tax and receive insufficient compensation.

The Correction Process

Reopening and restating statutory accounts for a prior year in Switzerland is straightforward but time-sensitive. The annual accounts must be formally revised and approved by the board, then approved by the AGM (or EGM) — the same approval process as the original accounts. The revised accounts replace the original filing.

In Becker Precision's case, we prepared a restated set of 2023 annual accounts with both accruals properly reflected. The board approved the restatement, the AGM approved the revised profit appropriation (distributable profit had changed), and the restated accounts were submitted to the Steuerverwaltung Zug with the 2023 corporate tax return. The Steuerverwaltung accepted the restated accounts without challenge — the accruals were well-documented and commercially sound.

The January 2024 accounts also required correction: the bonus and consulting fee, already posted as 2024 expenses, had to be reversed. Otherwise the same expenses would have reduced taxable profit twice — in the restated 2023 accounts and again in 2024. The netting of the reversal meant the 2024 effective profit was unchanged from what it would have been if the accruals had been made correctly in the first place.

What a Proper Year-End Close Requires

For any Swiss company closing a financial year, the following items require specific attention before accounts are finalised:

• Staff bonuses — if the board has resolved any December bonus or 13th month payment, these must be accrued as at 31 December regardless of the January payment date. This also affects AHV — the accrued bonus is subject to AHV in the year it is accrued, not the year it is paid.
• Management and advisory fees — any fee for services rendered in the financial year must be accrued even if the invoice has not yet arrived. The obligation exists at year-end; the invoice date is administrative.
• Audit and year-end accounting fees — the annual audit and fiduciary fees are typically invoiced in Q1 of the following year but relate to the closed year. They should be accrued as a liability at 31 December.
• Deferred revenue — if the company has received payment for services not yet rendered, that revenue must be deferred to the period of delivery.
• Prepaid expenses — insurance premiums, rent deposits, and subscriptions paid in December for the following year must be deferred to the correct period.

We conduct a structured year-end accruals review for all our bookkeeping clients as part of the quarterly close process — the December close being the most thorough. The review uses a standardised checklist cross-referenced against the prior year's accounts, open purchase orders, and payroll decisions made by the board before 31 December.

The Provisional Tax Reduction Application

Had Becker Precision known in Q3 2023 that the final profit would be significantly higher than the provisional base, they could have applied to the Steuerverwaltung Zug for an upward adjustment to provisional tax — avoiding a large underpayment assessment and the associated 4.0% default interest. In the opposite direction, if a company expects a materially lower profit than the provisional base, an application to reduce the provisional tax instalments is available and worth making — particularly if the expected profit reduction is large and the remaining instalments are significant.

The application is straightforward: a letter to the Steuerverwaltung Zug with a current-year profit estimate and brief supporting rationale. It should be submitted at least 30 days before the next instalment date. If granted, future instalments are recalculated on the reduced base. If actual profit exceeds the reduced estimate, the shortfall attracts 4.0% default interest — so the estimate should be realistic, not optimistic. For advice on how to structure the application, see our tax advisory service.