- · Switzerland extended its loss carryforward period from seven to ten years in December 2025, but the extension alone does not make those losses usable by an acquirer.
- · Share deals preserve loss carryforwards mechanically; asset deals do not — the losses remain with the seller.
- · Shell company transactions, anti-abuse rules, and cantonal variations can erode or entirely eliminate the value of carried-forward positions.
- · Rigorous due diligence, not headline tax law, determines whether a loss carryforward is a genuine asset or a number on a spreadsheet.
When the Swiss Parliament voted in December 2025 to extend the loss carryforward period from seven to ten years — applicable to losses arising from fiscal years beginning in 2020 or later, and effective no later than January 1, 2028 — the M&A community took note. Target companies carrying legacy deficits, particularly those navigating the disruptions of the early 2020s, suddenly looked modestly more attractive on paper. The extended window appeared to widen the opportunity for acquirers to price in deferred tax relief as part of their deal economics.
That optimism is understandable. It is also, in a number of practical respects, premature.
The gap between the statutory extension and the realisation of tax value in a live transaction is wider than the headline suggests. Navigating it requires an understanding not merely of federal tax law, but of deal structure, cantonal regimes, anti-abuse doctrine, and the documentary disciplines that tax authorities expect when losses are eventually claimed.
The first and most consequential fork in the road is deal structure. In a share acquisition, the target company retains its legal identity and, with it, its accumulated tax losses. The change of ownership does not, under Swiss federal law, automatically extinguish the carryforward position. This is a meaningful distinction from certain foreign jurisdictions where a change of control triggers immediate loss forfeiture, and it is one reason share deals remain the preferred vehicle for buyers seeking to capture legacy tax positions.
Asset deals operate on an entirely different logic. When a buyer acquires individual assets rather than shares, the loss carryforwards remain lodged with the selling entity. The buyer receives a step-up in the tax basis of the acquired assets — a different form of tax efficiency — but inherits none of the seller's historical loss positions. For SME transactions where legacy losses are material relative to deal size, this structural distinction can represent a meaningful difference in post-acquisition tax economics, and it warrants explicit treatment in any valuation model.
Acquiring shares mechanically preserves losses, but that preservation is conditional rather than absolute. Swiss tax authorities apply an economic substance test that is specifically designed to prevent what practitioners sometimes call the "loss trafficking" scenario: a buyer acquires a dormant or near-dormant shell, ceases whatever residual business the entity was conducting, and then launches an entirely unrelated profitable operation inside the same corporate wrapper in order to absorb accumulated losses.
Authorities reviewing such arrangements may deny the carryforward positions entirely. The principle at work is straightforward: loss carryforwards are intended to provide relief to the same economic enterprise that incurred those losses, not to serve as transferable financial instruments detached from any operational continuity. When the acquired business genuinely continues — even in evolved or restructured form — the risk is lower. When the acquisition is, in substance, a purchase of a tax attribute housed in an otherwise inert legal entity, scrutiny intensifies.
This is not a remote theoretical concern. Pestalozzi Attorneys, in their analysis of the new ten-year rules, identify shell company transactions as one of the most significant practical pitfalls in the current framework. Buyers and advisors who treat a carryforward position as a hard asset without interrogating the operational history and continuity of the target are, in effect, pricing in a value that may not survive tax authority review.
Related to, but distinct from, the shell company scenario is the broader anti-abuse framework. Swiss tax law does not recognise restructurings whose primary or sole objective is the transfer of loss positions to profitable entities. A transaction must be capable of articulating an objective commercial rationale that stands independent of its tax consequences.
This requirement places real demands on deal documentation. It is not sufficient for a transaction to have incidental commercial merit alongside its tax objectives; the commercial substance must be primary and demonstrable. In practice, this means that M&A advisors working on transactions where loss carryforwards are a meaningful component of the value thesis need to ensure that the deal record supports a coherent commercial narrative, and that tax optimization is positioned as a consequence rather than a cause.
The standard is not punitive — Switzerland is not hostile to tax-efficient structuring — but it is rigorous, and it is applied with more scrutiny in an environment where the carryforward window has just been extended and where legacy deficits are, for obvious reasons, more prevalent than in prior cycles.
Even when losses are structurally preserved and operationally defensible, the mechanics of their utilisation introduce further complexity. Swiss tax law requires that losses be exhausted in the order in which they arose — a first-in, first-out discipline that prevents selective preservation of more recent, longer-dated positions.
More subtly, the participation exemption — the regime under which qualifying dividend income received from subsidiaries is substantially exempt from corporate income tax — does not operate as a shield against loss utilisation. When a company receives dividend income that would ordinarily attract the participation exemption, losses carried forward may still be offset against that income, effectively exhausting the carryforward against income that would have been tax-free in any case. The result is an unintended acceleration of loss consumption that reduces the remaining carryforward available against genuinely taxable income in future periods.
For holding structures and acquisition vehicles with significant dividend flows, this is a material planning consideration that deserves attention before the acquisition closes, not after the first post-closing tax return is filed.
Switzerland's federal structure introduces a layer of complexity that is frequently underestimated by cross-border buyers accustomed to more centralised tax regimes. Loss carryforward rules at the cantonal level do not automatically mirror the federal position, and the December 2025 extension applies to federal direct tax. Cantons may maintain different rules, different periods, and different conditions.
The canton of Bern provides a concrete illustration. Under Bern's cantonal tax regulations, a seven-year carryforward period continues to apply for cantonal purposes in certain configurations — a material divergence from the extended federal window. Cantons operating monistic real estate gains tax systems introduce a further layer of specificity: the treatment of business losses against property gains is governed by cantonal rules that vary from jurisdiction to jurisdiction, and the offset mechanics may differ significantly from the standard income tax treatment.
For transactions involving real property, or for targets domiciled in cantons with distinctive tax architectures, federal-level analysis is a necessary but insufficient basis for due diligence. Canton-by-canton assessment is not optional — it is part of the work.
One aspect of loss carryforward planning that receives insufficient attention in deal processes is the ongoing documentation burden. Under Swiss tax practice, loss carryforwards are not conclusively recognised at the time the underlying losses are incurred. They are recognised, and may be challenged, at the point of offset — when the losses are applied against taxable profits. This means that an acquirer absorbing a target's historical losses may face scrutiny of the conditions under which those losses arose, potentially covering fiscal years that predate the acquisition by several years.
Complete, well-organised records of the target's loss history — the nature of the expenditure, the periods concerned, the prior tax assessments — are not merely good practice. They are a prerequisite for successfully defending a carryforward position that comes under review. Due diligence teams that confine their loss analysis to current-year documentation without examining the evidentiary trail for earlier periods are accepting a risk that may only materialise after the deal has closed and the advisors have moved on.
The practical implications are particularly pronounced at the lower end of the deal market, where SME acquisitions frequently involve businesses that accumulated losses through genuine operational difficulty rather than through structured tax planning. Those losses can look substantial relative to deal size. They can also dissolve quickly under the conditions described above — particularly where the target's operational continuity is ambiguous, where cantonal rules differ from federal treatment, or where the documentation trail is incomplete.
Institutional buyers and family offices with disciplined due diligence processes are well-positioned to identify and price these risks. Buyers relying on headline tax law, without the fieldcraft to assess substance and structure, are likely to be disappointed.
Parliament's decision to extend the carryforward window is a sensible piece of legislative modernisation. It acknowledges the multi-year nature of business recovery and provides companies with genuine operational losses more time to offset those positions against future profits. As a matter of tax policy, it is a proportionate response to the realities of how businesses actually recover from adverse cycles.
What it does not do is transform loss carryforwards into reliably transferable assets in M&A transactions. The conditions governing their survival, their utilisation, and their quantum remain demanding. The extension buys time; it does not resolve the structural questions that determine whether that time translates into value.
For buyers, sellers, and advisors active in the Swiss market, the ten-year window is a piece of context. The due diligence required to make use of it is the work.
This post reflects publicly available market information and does not constitute tax or legal advice. Readers should seek qualified professional counsel in connection with any specific transaction.
