Special features of hidden reserves according to Swiss law

The arbitrary assessment of hidden reserves is a peculiarity in Switzerland. With the basic concept of the true and fair view, which applies under the application of international accounting standards such as IFRS or US GAAP, the arbitrary valuation of assets and liabilities is not compatible.

The advantage of this Swiss peculiarity is that by forming hidden reserves, the external profit statement is reduced, so that less dividend is distributed to shareholders. The retained profit is then available for financing purposes to the company. If these are tax-recognized hidden reserves, the reduction of the profit statement also leads to a lower tax burden.

Hidden reserves represent concealed equity and are a “buffer” for economically bad times. By dissolving hidden reserves, the company can reduce or even eliminate the reported loss. Externally, the company then projects a better economic situation. In truth, the formation and dissolution of hidden reserves neither increase nor decrease profit or loss. The financial situation of the company remains unchanged. Only the accounting representation changes. Reserves are also not suitable for sustaining a company “in times of poor business,” although the legislator envisions this in OR 671 III. Hidden (and also open) reserves are merely a computational size and not actually existing funds or assets.