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Brussels Readies Official Complaint Against Swiss Tax System

by Ulrika Lomas,, Brussels

13 February 2007

The European Commission is reportedly about to make its displeasure with Switzerland's cantonal tax system officially known, and is expected to hand Bern a complaint within the next two days.

According to a report by Swissinfo, the EC will officially condemn the tax practices of some cantons as "discriminatory" and "distorting competition", in a communication scheduled to be released on Tuesday or Wednesday.

The report said that the 17-page document gives detailed information about the tax regimes of cantons Zug and Schwyz in central Switzerland, and the privileges they give to holding companies and other firms.

It is not the first time that the EU has taken issue with the tax regimes of these particular cantons; in a letter sent to the Swiss Mission in Brussels in 2005, the EC made particular reference to the tax regimes in Zug and Schwyz which, Commission officials warned, could "grant fiscal advantage to undertakings for... economic activities taking place outside Switzerland".

While the arguments put forward by the Commission in the new document are said to be "vague", and the extent of the alleged trade distortion is not quantified, Brussels nonetheless believes it has a case against Switzerland under article 23 of the 1972 free trade agreement, arguing that a privilege which "threatens to distort" trade is enough to breach the protocol. However, the EC must prove "serious difficulties" in trade under another provision in the treaty before it can consider the question of applying punitive tariffs against the Swiss.

The Swiss government, which has consistently rejected Europe's claims, is once again expected to rebuff this latest accusation.

Last month, State Secretary Michael Ambuhl "strongly rejected" criticism from the EU concerning the compatibility of the Swiss tax system with the trade agreement, at a meeting in Brussels with Eneko Landabaru, Head of the European Commission's General Directorate for External Relations. Ambuhl argued that there was no agreement between Switzerland and the EU requiring Switzerland to bring its company taxation into line with EU member states, and that consequently, "no violations of any agreements were possible". President Micheline Calmy-Rey has also said that there is "absolutely no room for negotiation," regarding Swiss tax laws.

In Switzerland, cantons can set their own tax rates within the framework of the 2001 Tax Harmonisation Act, and a direct link between voters and tax policy has helped to push local tax rates lower. This has attracted a growing number of international holding companies, and several high profile multinationals have established headquarters in Switzerland to help minimise their tax bills. The 'fiscal deal' offered by many cantons has also lured many well-paid and wealthy tycoons and celebrities to Switzerland from countries such as France, Germany and the UK, much to the annoyance of tax collectors in these EU member states.

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