Insight: Swiss, facing EU tax pressure, ponder how to attract firms

Tue Dec 18, 2012 7:20am EST
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By Emma Farge and Caroline Copley

GENEVA (Reuters) - "Happy Taxation" is a 2011 book by Pascal Broulis, finance minister of the Swiss canton of Vaud and celebrant of the low taxes that distinguish Switzerland. But as times get tougher, discontent about Swiss tax breaks is mounting.

Cash-strapped foreign governments have already chipped away at the secrecy that allows rich individuals to store tax-free funds in Swiss bank accounts. Now Europe's governments have turned the spotlight on the incentives Switzerland offers companies.

Swiss official company tax rates of around 21 percent compare with 33 percent in France and 29 percent in Germany, according to a 2011 survey by accountants KPMG; often companies in Switzerland actually pay much less. Denknetz, a left-wing Swiss think tank, estimates Switzerland's special tax regimes deprives other countries of up to 36.5 billion francs ($39 billion) in tax revenue each year - almost double the amount Spain's government raised in corporate tax in 2011.

Brussels has demanded that the country, which is home to nearly 24,000 "tax privileged" companies from online retailer eBay to Japanese automaker Nissan, scrap special tax breaks on some company profits.

In particular, the EU is angry that Switzerland's cantons, or states, compete with each other to attract multinationals' business, and charge less tax on foreign-earned income than they do on income earned in Switzerland. Brussels has said the practice, known as "ring-fencing", is the equivalent of providing unauthorized state aid to companies.

Last week the European Commission unveiled a plan to counter inventive tactics increasingly used by big companies to reduce their tax bills, and attacked countries like Switzerland whose policies it says encourage aggressive tax avoidance.

Switzerland is not a member of the European Union but has had a free trade agreement with the EU for the last 40 years. It says it's not doing anything wrong, and it has so far largely ignored the bloc's demands, which were first made in 2005.

In June, EU finance ministers threatened unilateral action if a "satisfactory response" is not communicated by the end of this year. The ultimate sanction would be trade tariffs, which would choke off Swiss industry from Europe, its main trade partner. Member states could take action by coordinating blacklists to be implemented at national level, said Emer Traynor, spokeswoman for the European Commission.   Continued...

The A-One Business Centre is pictured in Rolle, 30 km (19 miles) east of Geneva, December12, 2012. REUTERS/Denis Balibouse