Swiss say no to tax breaks and EU pressure

About two-thirds of the people surveyed are opposed to tax breaks for holding companies swissinfo.ch

A new survey shows that a majority of Swiss neither side with their government nor the European Union over a dispute on corporate tax rates.

Three-quarters said they opposed any interference from Brussels, but at the same time 63 per cent rejected the practice by some cantons of granting generous tax breaks to holding companies.

The poll of more than 1,000 people was commissioned by the SonntagsZeitung newspaper.

Its publication on Sunday followed a week of intense debate in the country, set off by a call by the European Commission on Tuesday for Switzerland to amend its fiscal policy.

But Switzerland has been embroiled in a corporate tax dispute with the EU since September 2005.

Many EU countries are angry that tax revenues are being lost as companies relocate to Switzerland – mainly to small cantons which offer low levies.

This week, the EU repeated its claim that the system allowed companies based in non-EU Switzerland to enjoy tax breaks on profits generated inside the EU, which it said is a breach of a 1972 trade agreement.

EU external relations commissioner, Benita Ferrero-Waldner, likened the tax breaks to state subsidies which undermine “the level playing field necessary for our partnership and trade relations”.

However, Swiss finance minister, Hans-Rudolf Merz rejected the criticism, saying the 1972 accord fails to deal with fiscal matters, and called the European Commission’s demand for negotiations an attack on Swiss sovereignty.

Defend

Not quite half – 49 per cent – of those questioned in the Sunday survey believed Switzerland would successfully be able to defend its position.

The survey results also hinted that the latest dispute has put the EU in a worse light among the Swiss. Only 41 per cent said they favoured providing financial aid for the latest EU member states, Romania and Bulgaria, as requested by the EU earlier this year.

In November, the Swiss electorate agreed to a government plan to provide SFr1 billion ($810 million) over ten years to the ten states who joined the EU in 2004. An official figure has not yet been made public, but it is thought the EU will ask Switzerland to contribute between SFr300 million and SFr350 million for the latest two members.

Asked if Switzerland should at some time in the future join the EU, half of the people surveyed said no, with 43 per cent in favour.

Unanimity

In an interview about the tax issue with the SonntagsZeitung, Merz said Switzerland had not broken any international agreements and was not willing to reconsider a free trade agreement decades later it has been signed – a move which could call into question tax policy.

He said Brussels would need unanimity from its member states to succeed with its attack on Switzerland’s tax regime, but that, he said, was unlikely since some EU countries also offer similar tax breaks.

Merz said Switzerland did not want to set a dangerous precedent. “It could reach the point where the EU demands that we double the rate of our Value Added Tax so it’s in line with the EU average,” he warned.

swissinfo with agencies

Key facts

Selected cantonal corporate tax rates (federal, cantonal and municipal) from a KPMG report published in November 2006: Obwalden 13.1% of operating income, Schwyz 15.6%, Zug 16.4%, Zurich 21.3%, Graubünden 29.1%. Swiss average 21.3%.
Business tax rates in other countries:
Japan 40.7%, US 40%, Germany 38.3%, Republic of Ireland 12.5%, Cyprus 10%.

In brief

Article 23.iii of the 1972 Free Trade Agreement states that: “any public aid which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods” is “incompatible with the proper functioning of the Agreement”.

The 1972 accord exclusively governs the trading of certain goods (industrial and agricultural processed products).

Switzerland argues that the procedures for taxing management companies, mixed companies and holding companies in the country do not fall within the scope of the 1972 free trade agreement.