The advantage for a company of making provisions is that disclosed profit can then be reduced, and shareholders receive fewer dividends for distribution. This allows the company to keep money internally for its own growth. These reserves can then be used should the company come across a difficult year when this provision can be released. This helps to even out reported financial performance over the years.

Often more beneficially, the reserves which are recognised by tax authorities allow for an effective reduction in tax paid. The provisions do not otherwise change the liquid position of the company, they are only accounting entries.

These provisions are allowed under Swiss accounting for companies within certain limits which tend to be much more generous than in other countries. If the company needs to conform with IFRS standards or US GAAP (e.g. when consolidating as part of a larger group) then it is necessary to remove these provisions as they would typically not be accepted under those accounting standards. In the meantime, the company will have a local tax advantage by having used Swiss accounting for its Swiss tax return.

Switzerland, known for its stability, enforces companies to constitute certain reserves from profits using specific guidelines, and there are therefore specific federally mandated guidelines, with precise percentages, together with a degree of discretion for the Board of Directors as to what to constitute as additional provisions.

More information is available on the website of the Confederation.