Switzerland Criticised By OECD For Allowing 'Harmful Tax Practices'

by Ulrika Lomas, Tax-News.com, Brussels

24 June 2003

According to a Swissinfo report this week, the OECD (Organisation for Economic Cooperation and Development) is threatening to place Switzerland on a blacklist, due to what the organisation considers to be its tolerance of 'harmful tax practices'.

However, experts have suggested that Switzerland's reputation as a low-tax, business friendly environment is the main reason why the Forum on Harmful Tax Competition, a body within the OECD, has turned its attention towards the country. Its low rates of corporate tax and good reputation as an international financial centre have attracted many large corporations to set up headquarters in Zurich, Geneva or Bern.

Whilst the country's appearance on the forum's blacklist would not create any legal obligations for Switzerland, it is a widely held belief that such an action could only be detrimental to the jurisdiction's international reputation, and would thus act as a turn off for foreign firms hoping to incorporate there.

"This is not acceptable" finance ministry spokesman Daniel Eckman told Swissinfo, continuing: "We have big difficulties understanding how after five years of discussions about what should be considered a harmful tax practice, the forum comes up with a report that considers Switzerland the only country in the whole OECD with harmful aspects in its tax legislation.”

"We won’t make any concessions in this field because we are convinced that our system is OK," Eckman asserted. "We will put forward our best arguments to the OECD to show them that this report is not correct."

Eckman also appeared to suggest the OECD forum's decision could be the result of pressure from certain countries that are determined to reduce Switzerland's attractiveness to international business. "Competition among countries to [host] these companies is fierce, and it’s only natural that every country looks to have favourable frame-work conditions," he observed, adding: "This report from the OECD has to be seen in this light."

At present a Swiss delegation is engaged in talks with the forum in a bid to avoid inclusion on the harmful tax blacklist. The government is also said to be considering using its veto within the organisation to block such a move.

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