Luxembourg lends support to Swiss in tax row

Luxembourg is happy to act as a friendly mediator in Switzerland's tax dispute with the EU Keystone

Switzerland has received support from Luxembourg in its ongoing row with the European Union over corporate tax breaks.

This content was published on February 14, 2007

During a visit to Luxembourg by Swiss President Micheline Calmy-Rey on Wednesday, Luxembourg rejected Brussels' threats, while calling on both sides to improve dialogue.

"We can count on our friends," declared Calmy-Rey, at the end of her meeting with Luxembourg's Prime Minister Jean-Claude Juncker.

On Tuesday the European Commission called on Switzerland to amend tax rules that it says offer unfair advantages to firms operating in some Swiss cantons.

The commission says low corporate taxes offered by cantons such as Obwalden and Zug violate a 1972 trade agreement, calling it a disguised state subsidy. The Swiss authorities reject this accusation.

"The European Commission shouldn't treat Switzerland like the 'Iraq of the Alps'," commented Juncker, repeating a term he had used several years ago when Brussels had attacked Switzerland over banking secrecy.

Juncker deplored the fact that the commission had threatened Switzerland with protective measures such as punitive tariff duties.

"Switzerland is not only Luxembourg's friend; it is also that of the European Union," he said.

The prime minister added that Switzerland had recently demonstrated its commitment as "a reliable partner for Europe" by pledging to pay SFr1 billion ($806.7 million) to the ten new EU member countries from eastern Europe.

Friendly mediator

However, Juncker stressed that Bern could not rely on its unconditional solidarity and he therefore did not wish to be drawn on whether his country would support Switzerland in the EU Council of Ministers.

"We are currently examining the European Commission's arguments and we will make our decision afterwards," he explained.

Calmy-Rey again reiterated Switzerland's position and rejected the need for negotiations with the EU: "There is no contract between Switzerland and the EU on the harmonisation of company taxation."

But Juncker, while rejecting the commission's tough approach, said that "between friends we should talk about certain things that some people prefer to keep quiet".

Unlike the issue of banking secrecy, Luxembourg does not have the same interests as Switzerland when it comes to tax regimes. Under pressure from Brussels, by 2010 Luxembourg has to do away with its different tax practices, which resemble those of the Swiss cantons.

In the quarrel between Switzerland and the EU, Luxembourg therefore prefers to be seen as a friendly mediator with the Swiss rather than a real ally.

Simon Thönen, Luxembourg

Switzerland's position

Switzerland is convinced that the procedures for taxing management companies, mixed companies and holding companies in the country do not fall within the scope of the 1972 free trade agreement.

The 1972 accord exclusively governs the trading of certain goods (industrial and agricultural processed products).

Bern says when signing the accord, neither Switzerland nor the European Economic Community intended to harmonise their laws either with regard to goods or in the areas of competition or state subsidies.

It argues that the provisions of the accord are not to be interpreted in the same manner as the EEC treaty's more detailed rules on competition.

Criticism that allocates responsibility to Switzerland as a participant in the internal market without legal justification is also rejected.

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