Realization of hidden reserves

In the following blog post, the circumstances of realizing hidden reserves are presented. Hidden reserves can arise for various reasons.

Hidden Reserves

Hidden reserves exist when assets have a higher market value or liabilities have a lower market value than the book value. They arise from different reasons. This includes, for example, excessive depreciation, asset appreciation, or goodwill. The formation of hidden reserves is done either by excessive loading of the income statement or by booking currently occurring value increases as profits later. From a tax perspective, hidden reserves only shift the payment of the tax burden into the future but do not avoid it.

Circumstances of Realization

In income and corporate tax, there are three circumstances for the realization of hidden reserves. One is the actual realization (through the sale of goods). Realization also takes place with an accounting revaluation. Lastly, the systematic realization within the tax system is considered, where latent tax-eligible reserves are converted into tax-free reserves.

In addition, there are various special cases in the realization of hidden reserves. These include the transfer of business assets abroad, the conversion of business into private assets, and the asset transfer of a regularly taxed company to a company with a special tax status. In these circumstances of realization, it is worth looking into the DBG (Direct Federal Tax) and the StHG (Federal Act on Harmonization of Direct Cantonal and Communal Taxes). It may be possible to avoid taxation despite the realization of hidden reserves.

   
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