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Resolving the conflict: Swiss Corporate Tax Reform

In this article, Christa Tobler explains why the EU–Swiss dispute couldn’t be solved through the Free Trade Agreement.
© University of Basel

In this article, we will discover how the EU–Swiss dispute on corporate taxation was resolved, though through a different avenue than the one first envisaged by the European Commission.

We heard earlier (Step 1.6) that the European Union (EU) based its accusations towards Switzerland on the Free Trade Agreement concluded in 1972. This agreement includes a clause on state aid, which the Commission deemed to have been breached. On the other side, the Swiss Government very firmly rejected these accusations, arguing in particular that the agreement did not cover tax matters. In legal terms, this means that the two parties to the agreement, namely the European Union, on the one hand, and Switzerland, on the other, disagreed on how to interpret the article on state aid.

The parties discussed the issue repeatedly in what is called the Joint Committee, a body set up under the Agreement and made up of representatives of both sides, which is responsible for the administration of the Agreement and its proper implementation. However, they were unable to find a solution in this manner. As for a resolution of the dispute in an international court, the Free Trade Agreement does not provide for this possibility. Rather than taking unilateral safeguard measures, which is a course of action allowed by the Agreement under certain circumstances, the European Commission decided to follow a different route and adopted the decision mentioned in a previous step in this week’s course work (Step 1.6). As was also stated in that step, Switzerland, albeit rejecting the EU’s accusations, nevertheless agreed to hold informal talks about the matter.

In the meantime, the EU was also active within in the Organisation for Economic Co-operation and Development (OECD). In 2013, the OECD published the report ‘Addressing Base Erosion and Profit Shifting (BEPS)’, mentioned in the previous step in our course (Step 1.9). In the BEPS Action Plan, the OECD detailed a number of actions to address profit shifting, including Action number 5 (‘Counter Harmful Tax Practices’). Pursuant to this Action, certain Swiss tax models were identified as potentially harmful. As an OECD member, Switzerland wishes to respect the rules and standards set by this organisation. Against this background, the EU–Swiss talks eventually led Switzerland to address the issue of the cantonal tax regimes in its work towards a revision of the Swiss corporate tax law, the so-called ‘Corporate Tax Reform III’, which was adopted by the Swiss Federal Parliament on 17 June 2016. On its website, the news service of the Swiss Confederation explained:

The reform aims to strengthen Switzerland as a business location, focusing on innovation, value creation and jobs. The proposed measures are compatible with the current international standards and will increase legal and planning certainty for companies. At the same time, the reform ensures that companies will make an appropriate contribution to the tax revenue of the federal government, the cantons and the communes also in the future. […] The reform will give corporate taxation a foundation that is in line with the current international standards. It will ensure a competitive environment for companies operating in Switzerland, particularly for activities associated with a high degree of innovation, value creation and jobs. It respects the cantons’ tax and fiscal policy autonomy while guaranteeing that inter-cantonal competition remains balanced and that the financial impact is bearable for the Confederation, the cantons and the communes.[1]

With respect to the EU, the revision reflects the second attempt of trying to achieve a compromise with the EU. In 2014, the EU and Switzerland signed a Memorandum of Understanding that formally declared an end to the EU–Swiss dispute on corporate taxation. A previous attempt in 2009 had not satisfied some of the EU Member States.

The Swiss left wing, however, successfully launched a referendum against the new federal law. In February 2017, about 59 % of those voting rejected the reform. A new proposal again led to a referendum and a popular vote in May 2019. This time, the voting population accepted the changes, including also the abolition of Art. 28 of the Federal Tax Harmonisation Act. [2].


[1] The Swiss Confederation, ‘Third series of corporate tax reforms ready for parliamentary deliberation’, published online in June 2015.

[2] The Swiss Confederation, ‘Federal Act on Tax Reform and OASI Funding’, published online in May 2019.

© University of Basel
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