EU Questions Swiss Cantonal Tax System

by Ulrika Lomas, Tax-News.com, Brussels

17 October 2005

The Swiss Canton of Zug has denied that its corporate tax regime breaches a 1972 Free Trade Agreement between Switzerland and the European Union.

In a letter sent to the Swiss Mission in Brussels, made public last week, the EU congratulated Switzerland on its decision to extend the free labour accord with the European Union. However, the letter also went on to point out that certain parts of the Swiss corporate tax regime "may be incompatible" with Switzerland's obligations under the agreement.

"The legislation in question, that is enforced in Zug and [canton] Schwyz, is said to grant fiscal advantage to undertakings for... economic activities taking place outside Switzerland," the letter stated.

Guido Jud, head of corporate tax in canton Zug, told swissinfo that he was "surprised" by the EU's viewpoint.

"The rules on taxation in Switzerland have not changed recently so we do not see why, in 2005, there should be suddenly be a problem," he stated.

In Switzerland, cantons are free to set their own tax rates within the framework of the 2001 Tax Harmonisation Act. This allows cantons to compete to attract foreign companies. Currently, the tax rate for companies in Zug ranges from 14% to 17%.

The federal government has played down the affair, saying the letter was merely a request for information rather than a formal complaint against the tax regime.

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