Switzerland considers the decision of the European Commission to be unfounded – no infringement of Free Trade Agreement by cantonal tax provisions

Bern, 13.02.2007 - Switzerland qualifies the decision of the European Commission in which the latter identifies an infringement of the 1972 Free Trade Agreement between the European Communities and the Swiss Confederation due to certain cantonal measures on company taxation as unfounded. No contractual regulations exist between Switzerland and the European Union (EU) on the harmonisation of company taxation. Consequently, it is not possible for there to be an infringement of any agreement. This applies in particular to the Free Trade Agreement.

On 13 February 2007 the European Commission informed Switzerland of its unilateral decision by which it considers certain tax schemes applied by the cantons to certain types of company (holding companies, management companies and joint enterprises) on the basis of parameters set under federal law (Tax Harmonisation Act), to be state aid. In the view of the Commission, these tax schemes at the cantonal and communal level distort competition and impair trade in a manner not compatible with the 1972 Free Trade Agreement.

The European Commission first signalled to Switzerland its concerns regarding taxation schemes at the cantonal and communal levels for certain types of company in September 2005. It made clear at that time that it might consider these tax schemes as state aid, not compatible with the 1972 Free Trade Agreement. Switzerland set out in detail the legal arguments to the Commission by letter dated 9 March 2006. On 13 March the Commission requested that an extraordinary joint commission be convened. As a result the parties discussed their positions. Nonetheless the Commission maintained its position in the meeting of the joint commission on 14 December 2006. To date the Commission has not responded to Switzerland's arguments.

Switzerland's argument

Switzerland rejects the criticism of the Commission as unfounded, in essence citing the following arguments:

  • There are no contractual regulations between Switzerland and the EU which could obligate Switzerland to bring its system of company taxation into line with that of the EU states. In this respect no violations of any agreements are possible.
  • This applies in particular to the Free Trade Agreement which only covers trade in certain goods and does not provide a sufficient basis for judging company taxation, in particular concerning distortion of competition.
  • Switzerland is not part of the Single European Market. Correspondingly neither the rules on competition in the EC Treaty - amongst others the rules on state aid - nor the code of conduct on company taxation agreed amongst the member states are applicable to Switzerland.
  • The cantonal measures on company taxation under criticism do not discriminate against domestic companies and do not constitute special treatment of foreign companies: they are not selective but are open to all commercial players - regardless of nationality or manufacturing or economic sector.
  • That the tax provisions criticised impair bilateral trade between Switzerland and the EU is simply not possible because the types of company mentioned are not allowed to carry out any business activities geared to the trade in goods in Switzerland or (in the case of joint enterprises) only carry out secondary business activities, although in the case of the latter, revenue from business activities in Switzerland are taxed as normal.

Maintaining Switzerland's appeal as a location for business

Locational competition is a fact. Tax burdens vary considerably even in the EU and company locational moves occur between the EU states. Like all states, Switzerland endeavours to be an attractive business location with advantageous conditions. Company taxation is an important factor in this regard, but is not the only reason by a long chalk for Switzerland being attractive. Modern infrastructure, a flexible, multilingual and well-qualified workforce, strong research and developmental capacity, industrial peace and a well-developed network of double taxation agreements with the most important economic partners amongst other things are also important in investment and locational decisions. Switzerland will ensure that its appeal as a location for Swiss and foreign companies remains intact or even improve upon this.

Address for enquiries

Elisabeth Meyerhans Sarasin, FDF; Tel. 031 322 63 01
Adrian Sollberger, Integration Office FDFA/ FDEA; Tel. 031 322 26 40


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