Europe welcoming but wary of Swiss tax reform

The Swiss delegation in Brussels Keystone

Switzerland's plans for reforming its corporate tax system are a "step in the right direction", EU Commission president José Manuel Barroso said on Monday.

Nevertheless, he made it clear at a media conference after a meeting in Brussels with three Swiss government ministers that more needs to be done to satisfy the European Union over tax reform.

The Swiss delegation to the talks was headed by Swiss president Pascal Couchepin, who was accompanied by Finance Minister Hans-Rudolf Merz and Justice Minister Eveline Widmer-Schlumpf.

Discussions between the two sides covered a range of issues hampering the extension of relations between them.

Tax regime

Switzerland’s tax regime has long been a major sticking point. Brussels claims that the practice of offering breaks to foreign holding companies is anti-competitive, which Switzerland has rejected as unfounded.

However, last week the Swiss government put forward proposals for a further reform of corporate taxes, with the aim of easing the dispute with the EU. They are designed to meet EU demands that the profits of holding companies should be subject to identical taxes, whether they are earned in Switzerland or abroad.

While welcoming the move, Barroso told a joint news conference after the talks that Brussels would now “analyse the proposals in detail”. He made it clear that discussion over the issue would continue.

He praised Switzerland’s intention of abolishing “mailbox companies”, but said he still had “certain doubts” about the mechanisms of the reform. The EU is concerned about two other aspects of Switzerland’s tax regime, namely the taxation of holding companies and of so-called mixed companies.

Merz said last week that the roughly 7,000 holding companies in Switzerland might be stopped from operating, while discussion was underway on ways of changing the treatment of the 2,700 or so mixed companies.

However, he also said that uniform taxation of profits was not feasible. Even before his arrival in Brussels he told the Swiss news agency that he did not expect the EU to be satisfied.

He said he would tell Barroso that “a reform such as the EU wanted is impossible”.

Couchepin told journalists after the meeting between the delegations that the abolition of mailbox companies would mean that more than 10,000 enterprises would lose their legal status, and that this was being done “to reach an understanding with the EU”.

Bilateral relations

EU ministers have said that they expect “progress in all areas of cooperation” before any new bilateral treaties are signed.

Ahead of the meeting with European Commission president, the Swiss government said discussions would “focus on the latest developments following the coming into force of the Schengen/Dublin agreements [last week] and the situation regarding the free movement of people”.

The latter issue is a particularly sensitive topic since Swiss voters will decide in less than two months whether to extend the treaty to the two newest EU member states, Bulgaria and Romania.

The EU has threatened to revoke all of its bilateral treaties with Switzerland if the extension is rejected.

Swiss sovereignty

Both Couchepin and Barroso came out in favour of drawing up a framework agreement to simplify the supervision and development of bilateral accords.

Couchepin stressed that such an agreement should respect Switzerland’s sovereignty as a non-member of the EU, and give it room to manoeuvre.

Barroso agreed that Swiss sovereignty had to be respected, but stressed that cooperation must be based on the body of EU rules and regulations known as the “acquis communautaires”.

swissinfo with agencies

Tax system

Three years ago the European Commission launched an offensive against the Swiss corporate tax system.

The EC claimed the practice of offering breaks to foreign holding companies was anti-competitive. The issue has not yet been resolved.

Various Swiss cantons offer tailor-made tax perks to wealthy individuals, luring rich people and their tax revenues away from their home countries.

This became a theme of the French Presidential elections in 2006 when rock star Johnny Hallyday announced his intention to move to Switzerland.

Switzerland has long been regarded as a haven for tax evaders thanks to its banking secrecy laws.

Swiss bank UBS was this year implicated in an ongoing investigation in the United States.

Germany and France last month called on the OECD to blacklist Switzerland as an uncooperative tax haven.