An invoice is not enough
A company decides for itself what is worth paying for. What it has to prove is that it received what it paid for. A Federal Supreme Court judgment of August 2026 shows how that proof fails.
A company's taxable profit is what remains after expenses justified by its business (Article 58(1)(b) DBG, the federal direct tax act; Article 24(1)(a) StHG, the act that harmonises cantonal taxes). That rule contains two questions, and the Federal Supreme Court keeps them apart.
The first is whether an expense is justified. The test is whether it is commercially reasonable from the company's own point of view, and it is not for the tax authority to ask whether it was a good idea. The second is whether the expense actually arose: whether the money really bought services that the company received. That is a fact that reduces tax, so the company has to prove it. If the proof is missing, the company bears the consequences.
The case
Judgment 9C_604/2025 of 28 August 2026 concerns a limited liability company in the Canton of Thurgau whose sole shareholder is also its managing director. For 2022 it declared a taxable profit of CHF 122,172. The tax authority added back a series of expenses and assessed CHF 449,154, which it reduced to CHF 439,134 on objection. Before the Federal Supreme Court, CHF 196,739.60 was still in dispute, invoiced by three suppliers.
Three suppliers, three ways an invoice fails
The findings are those of the Thurgau Administrative Court. The Federal Supreme Court reviews findings of fact only for arbitrariness, and found none:
- Seven invoices, each paid at once in cash.
From the first supplier, CHF 59,228 over the year, each invoice settled immediately in cash by the sole shareholder and credited to the shareholder's current account with the company. The company did this with no other supplier, gave no reason for it, and did not say the supplier had asked for cash. The invoices were flat-rate, which the court called entirely unusual in construction, and no daily time reports existed. All seven used the same description, with the same spelling mistakes and the same layout as another firm's invoices from the year before. The court held that, with a probability bordering on certainty, they were fictitious.
- Invoices that never said when.
From the second supplier, CHF 37,511.60 remained in dispute. The invoices named a building project and «fitter 1» or «fitter 2», but nowhere said when the work was done. In construction, hours billed on a time basis are recorded in daily reports that the client checks and usually signs. Without them there was no credible proof that the hours were worked for the company, and no way to assign them to the right year. Two further payments to the same supplier had no invoice at all; the company accepted those before the Federal Supreme Court.
- A supplier that did not yet exist.
The third invoice, for CHF 100,000, charged for site management by the company's own sole shareholder from January 2021 to April 2022. The supplier, a company limited by shares on whose board the same person sat, was founded in October 2021 and registered in November. The law allows obligations to be taken on in the name of a company still being formed (Article 645 CO), but only by a contract actually made in its name, and none was shown. The supplier had no staff costs in its 2022 accounts, and the invoice's footer carried the address, telephone number, email, IBAN and company number of the company that paid it.
The Federal Supreme Court dismissed the appeal. For the most part the appeal did not show why the cantonal assessment of the evidence was arbitrary: calling the invoices valid documents, or restating the company's own view, does not. That makes the judgment a confirmation, not a new rule. Three points in it are the court's own.
No written contract was required. The company argued that its contract with the third supplier did not have to be in writing. The court agreed, and noted that the cantonal court had never required it. What was missing was any proof that a contract existed, and the invoice was not that proof.
A taxpayer's own word carries little weight. The company wanted its shareholder heard. A third person willing to testify can be evidence; what taxpayers themselves tell the authority are assertions of fact, and their evidential value is usually low.
Even on the company's own account, reports were needed. The company said the second supplier had in fact lent it staff. Even then, the court said, daily reports would have been needed, to book the work properly and, where appropriate, to charge it on.
A company decides what is worth paying for. It still has to show that it received what it paid for.
What to keep, before anyone asks
- Keep the evidence of the work, not only the invoice.
An order or an offer, the correspondence, a description of what was done and when, time reports where work is billed by the hour, and what came out of it. No contract has to be in writing, but something has to show that the assignment existed and was carried out.
- Make sure the invoice says what and when.
A flat amount with a generic description and no period cannot be checked, and cannot be assigned to the right year.
- Check that the supplier could have done the work.
When it was founded, whether it has staff, what it does. A supplier founded after the work began, or with no staff costs, will be asked about.
- Pay through the bank.
A cash payment is not forbidden and not automatically non-deductible. But a payment that leaves no trail has to be explained, and an unexplained one counts against the company.
- Treat related parties as you would strangers.
Services from a shareholder, a director or a company they control need the same order, the same description and a price that unrelated parties would agree. If the deduction is refused, the authority may also treat the payment as a benefit to the shareholder, and the consequences then go beyond profit tax.
- Do not rely on another authority's audit.
Suva, the accident insurer, had treated some of the payments as the company's wages. That did not answer the tax question, which is decided under tax law alone, and the company had not filed the letter that gave Suva's reasons.
- Collect it during the year.
Reconstructing work done many months earlier is difficult, especially with outside suppliers and several projects at once.
Cantonal and communal tax follows the same rule, because the harmonisation act requires it of every canton (Article 24(1)(a) StHG); in this case the court simply referred to its federal reasoning.
The evidence that decides a case like this is created during the year, by whoever orders the work, checks it and pays for it. We keep the books through the year and prepare the annual accounts and the tax return, and part of that work is asking, before the year is closed, whether each significant expense could be shown to an authority that asks.
Sources
Federal Supreme Court, judgment 9C_604/2025 of 28 August 2026, on appeal from the Thurgau Administrative Court, VG.2024.136/E of 25 June 2025.
Federal Act on the Direct Federal Tax (DBG, SR 642.11), arts. 57 and 58. Federal Act on the Harmonisation of Direct Taxes of the Cantons and Communes (StHG, SR 642.14), art. 24. Swiss Code of Obligations (CO, SR 220), art. 645.
This article is general information and is not individual tax or legal advice. Whether an expense is deductible depends on the facts of each case and the evidence available for it.
This article is general information current at the date of publication. It is not advice in an individual case, and the treatment of any particular structure depends on its facts.
An audit on the calendar.
Tell us which years and which expenses are being looked at, and we will tell you what can still be documented.