EU tax showdown looms for Swiss

Obwalden is Switzerland's latest corporate tax paradise picswiss.ch

Swiss officials will meet their European Commission counterparts on Thursday to settle a dispute over cantons offering low corporate tax to attract companies.

Switzerland has denied allegations outlined in a letter sent by the commission in September that the Swiss tax system violates a 1972 Free Trade Agreement.

The letter, sent a day after Switzerland voted to extend its free labour accord to the new European Union member states, questions whether cantons Zug and Schwyz grant unfair advantage to foreign firms.

The letter goes on to say that this “may be incompatible with Switzerland’s obligations under the [1972 Free Trade] agreement”.

The head of the Swiss Mission in Brussels, Bernhard Marfurt, has sent a three-page response ahead of the showdown talks, refuting the claims.

This followed a public and vigorous defence of Switzerland’s tax system by Finance Minister Hans-Rudolf Merz in October.

In his letter to EC officials Marfurt explains the corporate tax system in Switzerland, giving links to websites that offer more information.

He also asks for more specific details of which cantonal practices allegedly contravene the trade agreement.

Talks

Marfurt will meet officials from the Commission’s External Relations Directorate-General, led by its director Richard Wright, on Thursday afternoon.

“We have received a letter which we are still assessing,” said EC External Relations Directorate-General spokeswoman Christina Mueschen. “We hope the talks will prove constructive and useful for everyone.”

Marfurt’s office declined to comment any further on the stance Switzerland planned to take at the meeting.

In the meantime, canton Obwalden raised the stakes by voting on Sunday to dramatically lower its corporate tax rates to 6.6 per cent.

From January Obwalden will offer the lowest corporate tax rates of any Swiss canton, overtaking Zug.

The Swiss Business Federation, economiesuisse, has defended the right of cantons to set low corporate tax levels, saying that this helps stimulate healthy competition.

“The Swiss people would have problems with the European Commission trying to find fault with the tax authorities of the cantons,” spokesman Pascal Gentinetta told swissinfo in October.

swissinfo, Matthew Allen

Key facts

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”.
Swiss cantons are free to set their own tax rates within the framework of the Tax Harmonisation Act, brought into force in 2001.
Obwalden has stated that it wants to attract companies to the canton with its new low corporate tax rate of 6.6%.