EU puts Bern back in the eye of the storm

Finance ministers of the EU want a rethink of the “bilateral path” with Switzerland Keystone

Foreign ministers of the 27 states in the European Union are due to adopt a harsh report on Swiss-EU relations on Tuesday.

In particular, the report wants to see the abolition of Swiss cantonal tax systems and a rethink of the “bilateral path” – the system under which Switzerland, a non-member of the EU, has reached bilateral agreements with Brussels.

 On December 7, finance ministers of the EU “encouraged” the European Commission to continue discussions with Switzerland with a view to convincing Bern to implement the code of (good) conduct the EU adopted in 1997 regarding the taxation of companies.

Given the “very close economic ties” which it has with the EU, “it’s not surprising that we should discuss the subject with Switzerland”, Luc Frieden, Luxembourg’s finance minister, commented at the time.

EU foreign ministers will hammer home the message when they approve plans on December 14 for future relations between the EU and the member countries of the European Free Trade Association (Efta) – Switzerland, Norway, Liechtenstein and Iceland – which will be fairly tough on Bern. The document has already been approved by EU ambassadors.

The implementation of the code of conduct has already forced the 27 to abolish certain tax measures considered harmful to competition because they might have prompted companies to move somewhere else. It’s now the situation in Switzerland which is causing them a headache.

“Very concerned”

They say they are “very concerned” by the Swiss maintaining cantonal taxation systems that are advantageous for holding companies, which create “unacceptable competition imbalances”. The EU believes they amount to state aid, which it says should be abolished. Switzerland has said it is prepared to amend them, but that no longer appears enough.

The EU is also critical of some of the measures in the new regional policy Switzerland is implementing. The tax exemption it envisages in order to encourage companies to set up in certain outlying regions could also trigger “competition imbalances” on both sides of the Swiss border, it notes.

It also wants the Swiss to cooperate better in the fight against tax fraud and evasion.

But the report is not confined to making demands about specific policies. The EU feels it is the right moment to redefine the framework of its bilateral relations with Switzerland.

The EU praises relations with Switzerland: it has joined the Schengen area and pierced the new Gotthard rail tunnel; it takes part in European efforts to manage crises and finances social and economic development projects in eastern Europe.

EU member states say they are “confident” that Bern’s contribution to streamlining the interior market “will continue in the future”.

End of the road

But the EU has indicated that the bilateral course, in which more than 100 agreements have been concluded, “has clearly reached its limits”.

The member states are critical of the “inconsistent application” of the accord on the free movement of people, complaining that Bern has implemented illegal accompanying measures to fight social and wage dumping.

They accept that their cooperation with the Swiss “should (continue to) be developed in areas of mutual interest” but with strings attached.

The EU no longer wants to make made-to-measure compromises with Bern; instead, future agreements should include mechanisms making it possible to adapt them to changes in EU legislation, and ensuring a legal framework to monitor the way they are implemented and to settle disagreements.

Switzerland and the European Commission have already opened exploratory talks on the issues, but it is well known in Brussels that the two parties do not agree on the ways to reach these goals.

Switzerland and the EU

1961: Seven countries, including Switzerland, sign the treaty creating the European Free Trade Association.

1963: Switzerland joins the Council of Europe

1992:  The Swiss government requests the opening of negotiations on European Union membership. The application is still on ice.

1992: Swiss voters decide by 50.3% not to apply for membership of the European Economic Area.

2006: A government report on European integration clearly explains that Switzerland’s policy towards the European Union should be based on bilateral relations.

Since 1972 Switzerland and the EU have signed nearly120 accords.

Switzerland under pressure

February 2009: UBS is authorised by Bern to give to the United States the identity of 255 clients it helped evade US tax authorities, in violation of banking secrecy.

March 2009: Targeted by the OECD, Bern decides to relax banking secrecy by adopting standards on information exchange.

April 2009: The G-20 group of countries places Switzerland on a “grey” list of tax havens which are prepared to make efforts on the exchange of information.

August 2009: Switzerland and the US reached agreement on UBS, under which the Americans would no longer want the identities of 52,000 account holders. Administrative assistance is granted on 4,450 accounts.

September 2009: After having signed 12 revised double taxation accords, Switzerland is removed from the OECD’s “grey” list.

November 2009: The government proposes to parliament to submit the new double taxation accords to an optional referendum. The EU postpones until 2010 a project on savings taxation that implies an automatic exchange of information.

Official Swiss position: Switzerland is adamant in refusing the automatic exchange of information. Administrative assistance is granted on a case by case basis to concrete and justified demands. The exchange of information is limited to taxes covered in the double taxation agreements.

(Adapted from French by Robert Brookes)