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Switzerland To Fight On Against EU Tax Claims

by Ulrika Lomas,, Brussels

16 February 2007

The Swiss government has repudiated allegations made by the European Commission earlier this week that the country's company tax regime infringes the Switzerland/EEC free trade agreement, dismissing them as "unfounded".

In an official response to the EC's complaint, the Swiss government reiterated its belief 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, 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.

Switzerland also argued that the cantonal measures on company taxation under criticism do not discriminate against domestic companies and do not constitute special treatment of foreign companies, because they are not selective but are open to all commercial players - regardless of nationality or manufacturing or economic sector.

"That the tax provisions criticised impair bilateral trade between Switzerland and the EU is simply not possible because the types of company mentioned are not allowed to carry out any business activities geared to the trade in goods in Switzerland or (in the case of joint enterprises) only carry out secondary business activities, although in the case of the latter, revenue from business activities in Switzerland are taxed as normal," the Swiss government said.

"Locational competition is a fact. Tax burdens vary considerably even in the EU and company locational moves occur between the EU states. Like all states, Switzerland endeavours to be an attractive business location with advantageous conditions. Company taxation is an important factor in this regard, but is not the only reason by a long chalk for Switzerland being attractive," it added.

Besides tax, the government attributed its success at attracting international companies to its modern infrastructure, flexible, multilingual and well-qualified workforce, strong research and developmental capacity, industrial peace, and well-developed network of double taxation agreements. It also pledged to maintain its appeal as a location for Swiss and foreign companies "or even improve upon this".

On 13 February 2007 the European Commission informed Switzerland that it considers certain tax schemes applied by the cantons to certain types of company (holding companies, management companies and joint enterprises) on the basis of parameters set under federal law (Tax Harmonisation Act), to be state aid. In the view of the Commission, these tax schemes at the cantonal and communal level distort competition and impair trade in a manner not compatible with the 1972 Free Trade Agreement.

The European Commission first signalled to Switzerland its concerns regarding taxation schemes at the cantonal and communal levels for certain types of company in September 2005. According to the Swiss government, the EC stated at that time that it might consider these tax schemes as state aid, not compatible with the 1972 Free Trade Agreement. Switzerland set out in detail the legal arguments to the Commission in a letter dated 9 March 2006.

Despite the Commission's request that an extraordinary joint commission be convened to discuss the issue, the Swiss government has accused the EC of failing to respond to its arguments.

A comprehensive report in our Intelligence Report series examining offshore confidentiality is available in the Lowtax Library at and a description of the report can be seen at

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