In its decision 9C_296/2025 of 30 June 2026, a five-judge panel of the Federal Supreme Court addressed the relevance of the probability when recognising provisions. Intended for publication, the decision establishes a clear threshold for individual risks and additionally requires an aggregate assessment where several risks exist. If the probability of occurrence of an individual risk is below 20% to 25%, an outflow of resources is considered unlikely. No provision may be recognised for that individual risk. Where several individual risks exist, however, it is necessary to assess the likelihood that at least one of them will materialise. If that aggregate probability exceeds the applicable threshold, a provision must be recognised. The Federal Supreme Court did not, though, specify the amount of the provisions.
I. BACKGROUND
The appellant construction company held a 35% interest in a consortium that had completed a major construction project with a contract value of approximately CHF 733 million. No outstanding defects existed when the project was handed over. However, warranty periods of three and five years respectively were still running.
The consortium identified 26 potential defects. The estimated probabilities of occurrence were predominantly between 5% and 10%. Only the item “other defects” was assigned a probability of 20%. The construction company recognised an expense of CHF 7 million for its share of an additional warranty-related provision of CHF 20 million.
The Tax Administration of the Canton of Bern refused to recognise the provision because of the low probabilities of the individual defects and an average probability of approximately 6.8%. The Administrative Court of the Canton of Bern upheld this assessment. The construction company appealed to the Federal Supreme Court, which partially upheld the appeal and referred the matter back to the lower court for reassessment. The issue was therefore whether the provision was commercially justified within the meaning of Art. 63 para. 1 let. a of the Federal Tax Act. Under accounting law, the recognition of provisions is governed by Art. 960e para. 2 Code of Obligations. Under the principle that the commercial accounts are authoritative for tax purposes, financial statements complying with commercial law are binding for tax purposes, provided that the provision recognised is commercially justified.
II. INDIVIDUAL RISK: NO PROVISION BELOW 20% TO 25%
For an individual risk, the Federal Supreme Court’s statement is unequivocal. A possible outflow of resources with a probability of occurrence below 20% to 25% is considered unlikely and does not justify a provision. At the same time, the Federal Supreme Court – once again – rejects the IFRS “more-likely-than-not” approach for Swiss accounting law, which is shaped by the principle of capital protection.
Above this range, the question turns to measurement. Prevailing academic opinion proposes a provision measured on a proportionate basis, at least in the lower probability range. Under this approach, the possible outflow is weighted by the probability. The Federal Supreme Court expressly leaves open whether this approach should apply.
III. MULTIPLE INDIVIDUAL RISKS: THE AGGREGATE RISK IS DECISIVE
For several risks that are individually unlikely, the Federal Supreme Court now expressly holds that a provision must be recognised if the probability that at least one of them will materialise exceeds the applicable threshold. The individual risks must therefore be assessed neither in isolation nor by reference to an average probability.
Assuming independent risks (the Federal Supreme Court does not address stochastic independence), the aggregate probability that at least one of several unlikely risks will materialise is calculated as the complement of the probability that none will materialise. Specifically, the probability that an individual risk will not materialise is 90% to 95% (100% less the probability that it will materialise). The probability that none will materialise is the product of these individual probabilities. In general terms, this can be expressed by the following formula:
With 26 independent risks, each having a 5% probability of occurrence, the probability that at least one will materialise is approximately 73.6%. Each individual risk falls below the threshold when viewed in isolation. The aggregate risk, however, is well above it. Based on this model calculation, the Federal Supreme Court’s reasoning would in principle require a provision. The Federal Supreme Court did not conclusively address how a provision should be measured where the aggregate risk is high. In the case at hand, the Court referred the matter back to the lower court for reassessment. The lower court must now calculate the aggregate risk in accordance with the Federal Supreme Court’s reasoning and determine the amount of the provision deductible for tax purposes.
IV. PRACTICAL RELEVANCE FOR SMES
Although the court’s decision explicitly concerns highly complex major construction projects, its central finding is also likely relevant to SMEs with several material contingent liabilities. The following simple example illustrates this point: just four independent risks, each with a 15% probability of occurrence, produce an aggregate probability of approximately 47.8%. This figure initially determines only that a provision must be recognised. It does not automatically mean that 47.8% of the maximum possible aggregate loss must be provided for. The Federal Supreme Court leaves precisely this measurement question open.
SMEs should therefore assess whether several individually unlikely warranty obligations, liability risks or pending legal disputes combine to form an aggregate risk requiring a provision. When preparing the annual financial statements, the following questions should therefore be assessed and documented:
• What obligations have arisen from past events?
• What are the respective probabilities of occurrence and possible outflows of resources?
• Are the risks independent, or do they overlap?
• What is the aggregate probability of occurrence?
• Which method is used to determine the amount of the provision?
Contemporaneous documentation is particularly important because the taxpayer must demonstrate that a tax-deductible provision is commercially justified, while documentation prepared only retrospectively may undermine credibility. The Federal Supreme Court expressly instructed the lower court to assess, from this perspective, whether the taxpayer company had complied with its duty to cooperate.
V. QUESTIONS LEFT OPEN BY THE DECISION
The Federal Supreme Court leaves open how the amount of the provision should be determined where the level of aggregate risk requires a provision to be recognised. It does not decide whether the proportionate provision proposed in the literature should apply. Nor does it prescribe a conclusive measurement method for the lower court. It does, however, once again reject the IFRS “more-likely-than-not” approach.
In addition, the formula set out above assumes that the individual risks are independent. However, the Federal Supreme Court’s decision does not explain how dependencies, overlaps or common causes among different risks should be considered. This issue is mathematically significant and will need to be addressed by the lower court in the remittal proceedings.
Finally, it remains open whether the aggregate assessment is limited to highly complex major projects or applies generally where several material contingent liabilities exist. In our view, SMEs should also take the new case law into account.
VI. CONCLUSION
Below a probability of occurrence of 20% to 25%, no provision may be recognised for an individual risk. Several such risks may nevertheless collectively trigger an obligation to recognise a provision. Probability therefore operates twice: first in determining whether a provision must be recognised and then in measuring its amount. In its landmark decision of 30 June 2026, the Federal Supreme Court established the principles governing the first question. It left open the subsequent question of the amount of the provision permissible for tax purposes.
