Switzerland rejects EU tax criticism

Differences over tax between Switzerland and the EU continue Keystone Archive

The federal authorities have dismissed European Union concerns that the tax practices of some Swiss cantons violate a free-trade pact between Bern and Brussels.

This content was published on March 9, 2006

The official Swiss position was detailed in a ten-page letter personally delivered to the EU on Thursday by ambassador Bernhard Marfurt.

"We presented a solid and transparent document, and now we are calmly awaiting the EU Commission's reply," Marfurt told the media.

The document stated Switzerland's "firm conviction that the tax rules for companies do not fall within the jurisdiction of the 1972 free-trade accord".

It comes in response to a memorandum from the EU Commission in December questioning whether generous tax breaks for companies in cantons Zug and Schwyz constitute an unfair tax advantage. Since then canton Obwalden has introduced the lowest corporate taxes in Switzerland.

Bern had already made its view on the issue clear to Brussels, but had promised a more detailed report. That report had initially been expected in February.

Entrenched positions

The EU Commission's position is that advantageous cantonal tax rates constitute a state subsidy, which goes against the spirit of the free-trade agreement concluded between Switzerland and the-then European Economic Community in 1972.

Switzerland has consistently rejected any link between the tax practices of some cantons and the trade in goods.

Michael Ambühl, state secretary in the foreign ministry, met EU Commission officials last month for talks on the tax issue. He said afterwards that Brussels had "expressed its concern" but there had been no talk of ramifications for bilateral relations.

Switzerland has proposed a meeting of experts to clarify remaining issues between the two sides. A next step would be formal talks.

If no agreement is reached, Brussels could opt for retaliatory measures, including reversing customs concessions.

swissinfo with agencies

In brief

Article 23.iii of the 1972 Free Trade Agreement states that "any public aid which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods" is "incompatible with the proper functioning of the Agreement".

Swiss cantons are free to set their own tax rates within the framework of the Tax Harmonisation Act, brought into force in 2001.

Obwalden is the latest canton to introduce a special tax rate – 6.6% - to entice companies.

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