EU-Switzerland: State aid decision on company tax regimes
European Commission - IP/07/176 13/02/2007
Brussels, 13 February 2007
The European Commission has decided that certain company tax regimes in Swiss Cantons in favour of holding, mixed and management companies are a form of State aid incompatible with the proper functioning of the 1972 Agreement between the EU and Switzerland. At stake are schemes offering unfair tax advantages to companies established in Switzerland, for profits generated in the EU. The Commission asks Switzerland to amend these tax schemes to bring them in line with the terms of the Agreement. The Commission has also asked the Council for a mandate to start negotiations with Switzerland with a view to finding a mutually acceptable solution.
External Relations Commissioner Benita Ferrero-Waldner said: “Switzerland enjoys the benefits of privileged access to the internal market and must accept the responsibilities that go along with this. The decision the Commission has taken is not about tax competition but about State aid undermining the level playing field necessary for our partnership and the trade relations between Switzerland and the EU.”
Under Swiss law, the Cantons may fully or partially exempt profits generated abroad from cantonal and municipal company tax. All Swiss Cantons have made use of this provision, although in different forms. Over the years, this has proved to be a formidable incentive for the headquarters, co-ordination and distribution centres of multinationals to be based in Cantons such as Zug and Schwyz, in order to minimize their tax liabilities. As these multinationals are mostly active in the EU market, such tax regimes may directly or indirectly affect trade between the EU and Switzerland. While the Commission is not against tax competition or low tax rates, it cannot accept schemes that differentiate between domestic and foreign source income.
Following complaints by Member States, Members of the European Parliament and businesses, the Commission reviewed some of the cantonal tax regimes to assess their compatibility with the State aid provision in Article 23(1) of the Agreement between the European Economic Community and the Swiss Confederation of 22 July 1972.
The issue was referred to the Joint Committee established under the Agreement at its meeting on 15 December 2005 and was further discussed with Switzerland at an expert meeting on 4 May 2006 and at subsequent meetings of the Joint Committee on 5 May and 14 December 2006. It has not been possible to find a solution in this framework.
In 1972, all EFTA countries concluded identical agreements with the EU. Similar action against State aid has been taken in the past on the basis of the corresponding provisions in agreements with other EFTA countries. Tax regimes similar to those in Switzerland are not allowed inside the EU under the State aid provisions of the EC Treaty (Article 87), and the Commission has taken action against Member States.
Also, Member States have committed themselves to abolishing similar preferential tax measures in the Code of Conduct for Business Taxation of 1997 and to promoting the standards of the Code of Conduct with third countries.
Following today's decisions, the European Commission will discuss further proceedings with Member States with a view to negotiating with Switzerland the modification of the tax schemes in question in order to remove the differentiated tax treatment of foreign profits in Switzerland and put an end to the resulting distortion of competition.
For more information:
 OJ L 300, 31.12.1972, p. 189.
 Council Regulation (EC) No 3697/93 of 20 December 1993 withdrawing tariff concessions in accordance with Article 23(2) and Article 27(3)(a) of the Free Trade Agreement between the Community and Austria (General Motors Austria), OJ L 343, 31.12.1993, p. 1; Council Regulation (EC) No 317/94 of 20 December 1993 withdrawing tariff concessions in accordance with Article 23(2) and Article 27(3)(a) of the Free Trade Agreement between the Community and Austria (Grundig Austria), OJ L 41, 12.2.1994, p. 18).
 OJ C 2, 6 January 1998, p. 3