Barroso raises the tax stakes with Switzerland

Barroso has harsh but also friendly words for Switzerland Keystone

EU Commission President José Manuel Barroso has fuelled debate over Switzerland's tax system ahead of Monday's trip to Brussels by Swiss President Moritz Leuenberger.

But the European Union’s top politician also has friendly words about Switzerland.

Relations between Switzerland and the EU are similar to the summer weather. It’s mostly fine but thunderstorms cannot be ruled out. Just days before Leuenberger’s visit to Brussels, Barroso has put a little thunder into the air.

On Wednesday Barroso sharply criticised Swiss cantons for granting certain tax privileges to foreign firms.

“Some cantons are applying a discriminatory tax regime which is contrary to the rules of the EU’s internal market,” he told swissinfo.

He warned that if Switzerland wanted to take a more active part in this market, it would have to change its tax practices.

This view from Brussels is nothing new – the tax dispute has been brewing since last autumn.

But up to now it was never clear whether the EU Commission really supported the criticism that originally came from its External Relations Directorate-General.

No doubt

After Barroso’s comments there seems no doubt that Brussels is not going to give up on this tax issue very easily.

The Swiss authorities have tried to keep the tax dispute on the back burner and Leuenberger will try to keep it that way during his visit to Brussels.

“He will not actively bring the subject up,” said Daniel Bach, a spokesman in Leuenberger’s ministry for the environment, energy, transport and communications. But it is assumed Barroso will.

If this is the case, Leuenberger will come out with the familiar Swiss position.

“The cantonal tax regulations do not distort competition, nor do they contravene the free trade agreement with the EU,” Bach said.

Distortion

But the EU Commission views the cantonal fiscal practices as a distortion of free trade.

As Switzerland and the EU have not been able to come to an agreement on the issue, the EU has been preparing unilateral measures.

It is likely that after the summer break it will decide on a resolution that maintains that the Swiss tax regimes are incompatible with the free trade agreement.

The next step from Brussels would be so-called “protective measures”. The EU could withdraw preferential tariffs for certain Swiss goods, and if Switzerland were to resort to “protective measures”, there could be a trade war.

But Barroso, who spent six years in Geneva, is trying to look on the bright side. “Swiss federalism is an inspiration for the EU,” he said.

“Switzerland has a friend in me and I am the head of the European Commission.” It looks therefore as though there will be a protracted argument between friends on the agenda of bilateral relations.

swissinfo, Simon Thönen in Brussels

Key facts

The 1972 free trade agreement between Switzerland and what is now the European Union is one of the pillars of relations between Bern and Brussels.
Accepted by Swiss voters in December 1972, it was a political by-product when Britain and Denmark left the European Free Trade Association to join the European Economic Community.
The accord governs industrial products only.

In brief

The EU Commission has been criticising Swiss cantonal practices that treat mostly foreign firms. It concerns the regulations for holding and management companies that have their headquarters in Switzerland but do not carry out any business.

Brussels is annoyed that the foreign business of these companies is only very lightly taxed. It considers this unfair competition.

The EU’s code of conduct forbids EU states to attract foreign companies with lower taxes than domestic firms. Switzerland has not signed this code.

Brussels is now playing the free trade agreement card and calls the tax breaks state subsidies.