Swiss stick to their guns in tax dispute with EU

Bern and Brussels don't see eye to eye on the tax issue Keystone

A tax dispute between Switzerland and the European Union remains deadlocked because of differing interpretations of a free trade agreement, says a senior Swiss diplomat.

Ambassador Bernhard Marfurt, head of the Swiss mission in Brussels, told swissinfo that the EU’s demands were a direct challenge to non-member Switzerland’s “tax sovereignty”.

Marfurt was speaking after the latest round of talks in the Belgian capital on Friday in which the EU continued to insist that low taxes in some Swiss cantons violated a 1972 free trade agreement between the Union and Switzerland.

Bern again rejected the accusation, arguing that tax systems do not fall within the scope of the agreement and do not affect bilateral trade.

The European Commission lodged the complaint with Bern last December, amid moves by several cantons to lower corporate taxes to attract investment. It claims that tax rates in some cantons are so low as to constitute a form of subsidy for businesses.

swissinfo: Are you surprised or disappointed by the attitude of Brussels?

Bernhard Marfurt: We had a very good and intense exchange of views. We have given the EU all the information which is needed to understand our tax system. Of course, we regret that we could not totally convince the Commission side of our position.

swissinfo: Where do we go from here?

B.M.: Both partners will now examine the results of Friday’s meeting. We maintain, of course, our position. It remains to be seen what conclusions the Commission will draw.

swissinfo: You say the provisions of the free trade agreement of 1972 are not to be interpreted in the same way as the EU treaty’s more detailed rules on competition. Why not?

B.M.: Switzerland is not a part of the European Union’s internal market. [Instead we have a] free trade zone and for that reason Article 23 of the free trade agreement cannot be interpreted in the same way as if it were a [part of the] European Union’s competition legislation.

The objectives of both treaties are different. And although the wording is similar, it has always been said, also by the European Commission, that there are important differences and that the interpretations vary.

swissinfo: From the Swiss point of view is this a black and white issue or are you prepared to compromise with Brussels?

B.M.: It is certainly an issue of utmost importance because it has a political dimension. Switzerland is a federal state. The cantonal taxes are an important ingredient of the cantonal sovereignty… so when we are talking about a tax system and cantonal tax system we are not talking about a technical matter.

We are talking about something that strikes at the heart of the political system of Switzerland. We have therefore very strong views on the maintenance of Swiss tax sovereignty.

swissinfo: Do you fear sanctions from Brussels?

B.M.: Nobody has yet talked about what is foreseen in the free trade agreement as safeguard measures. One has also to keep in mind that the European Union and Switzerland are very close economic partners.

Switzerland is the number two client of the European Union so both sides have an interest in avoiding troubles in this mutually beneficial partnership, and therefore I believe the question of safeguards would be really a question addressed as a very last resort.

swissinfo-interview, Robert Brookes

Key facts

Switzerland and the EU entered into a free trade agreement in 1972.
Article 23.iii of that 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”.

In brief

Cantons and communities in Switzerland are autonomous in tax matters, and tax rates vary widely from canton to canton.

Several German-speaking cantons have recently slashed tax rates to encourage wealthy individuals and firms to relocate there.

The European Commission maintains that such low taxes constitute a form of subsidy for businesses and therefore contravene a long-standing free trade agreement.

Bern argues that the agreement governs only the trading of certain goods, and has nothing to do with competition, which concerns only members of the EU’s internal market.