While both sides have acknowledged their deep divisions on the issue of taxation, following a series of meetings between the Swiss government and senior European Commission figures, they have agreed to resume "technical" discussions next month.

"We have differences on the tax issue, but we agree to keep on speaking together, and that dialogue will reach its goal," Swiss President Micheline Calmy-Rey commented after a meeting with the head of the European Commission, Jose Manuel Barroso, in Brussels on Tuesday.

The European Commission complains that it is unfair Switzerland uses its many corporate tax breaks and "privileged" access to the EU single market to encourage the establishment of holding companies by EU-based firms which then pay Swiss taxes and avoid EU taxes.

In February 2007, the European Commission informed Switzerland that it considers certain tax schemes applied by Swiss cantons to be state aid which distorts competition and impairs trade in a manner not compatible with the 1972 Free Trade Agreement.

In response to the Commission's claims, Switzerland argues that no contractual regulations exist between Switzerland and the European Union on the harmonisation of company taxation, and that consequently, it is not possible for there to be an infringement of any agreement.

"This applies in particular to the Free Trade Agreement," Berne stated in February, arguing that this agreement only covers trade in certain goods, and does not provide a sufficient basis for judging company taxation, in particular concerning distortion of competition.

Moreover, the Swiss government emphasised the fact that it is not part of the Single European Market, so neither the rules on competition in the EC Treaty - amongst others the rules on state aid - nor the code of conduct on company taxation agreed amongst EU member states, are applicable to Switzerland.