Frictions between Bern and Brussels spice talks

The EU wants Switzerland to grant the planned aid to eastern Europe. European Commission

Swiss President Moritz Leuenberger met the head of the European Commission, José Manuel Barroso, on Monday for bilateral talks in Brussels.

Their meeting came after recent EU criticism of Swiss tax policies and banking secrecy, and warnings that rejecting a SFr1 billion ($814 million) solidarity contribution for new EU members would be a mistake.

The talks in Brussels included themes such as the ongoing implementation of two sets of bilateral accords signed by the Swiss with the EU in recent years and negotiations surrounding electricity transfers.

But the real issues were discussions about future relations between Switzerland and the Union and the solidarity contribution for the new eastern members of the EU.

Barroso fired a broadside last week over Switzerland’s tax system ahead of Leuenberger’s trip to Brussels. The EU had already voiced its discontent last autumn, when the head of the European Commission 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,” Barroso told swissinfo.

The Swiss authorities have tried to keep the tax dispute on the backburner and both men played down the dispute after their meeting. However, there seems to have been no progress made on the issue.

Banking secrecy

Banking secrecy is another major bone of contention. As part of the second set of bilateral accords that went into effect on July 1 last year, Switzerland and the EU signed a savings tax agreement.

The treaty compels Swiss banks to collect a withholding tax that will eventually rise to 15 per cent on the savings interest earnings of EU resident customers unless they voluntarily disclose account details to their home country. But this has apparently brought in less revenue than expected.

Last week, the Financial Times wrote that EU tax commissioner Laszlo Kovacs was concerned about how the savings directive has been implemented in offshore financial centres and demanded a review of operations.

In six months, Switzerland – the world’s leading offshore financial centre – raised €100m (SFr155 million) in withholding taxes.

The Swiss Bankers Association has denied that the withholding tax is a flop, stating that the system was working fine and delivering results.

Cohesion Fund

Barroso has also issued a warning to Switzerland about its planned SFr1 billion ($814 million) contribution to the ten new EU members.

He told the NZZ am Sonntag newspaper that if voters were to turn down Switzerland’s contribution to the so-called Cohesion Fund it would send a “very bad signal.”

While legally the contribution has no tie to the bilateral accords, a “no” vote could make future relations with the EU more complex say Swiss officials.

The commission president added that Swiss citizens should consider the long-term benefits of the fund rather than take a shortsighted financial view of the question, since the extension of the EU was also to Switzerland’s advantage.

“If you benefit from this, you should show some solidarity as well,” he said.

It is unclear whether the Swiss will accept the contribution in November. A poll published by the mass-circulation Blick tabloid on Saturday showed that half of all voters would turn it down, while one quarter was in favour and the remainder unsure.

swissinfo with agencies

In brief

Switzerland has been granting financial aid to countries in eastern Europe to help them transform into market economies.

As part of the second set of bilateral treaties with Brussels, non-EU member Switzerland, pledged to provide SFr1 billion over ten years to the ten new EU member states mainly in eastern Europe.

The funding will come mainly from cuts in aid programmes run by the foreign and economics ministries.

Key facts

1972: Switzerland and the European Community sign a free trade agreement.
1992: Bern lodges an application for membership of the European Union. In the same year, the people reject membership of the European Economic Area.
2002: the first package of bilateral agreements with the European Union comes into force.
2004: Bern and Brussels sign a second package of measures.