Corporate tax, the automatic exchange of banking information and free movement of people: three major conflicts between Bern and Brussels that are unlikely to be helped by Italy’s presidency of the European Union (EU) in the coming months.
“For its presidency of the EU, the Italian government proposes accelerating political cohesion in Europe, addressing the host of asylum problems and promoting an economic policy that can strengthen growth and employment,” said Claudio Micheloni, an Italian Senator who lives in Switzerland representing the interests of Italians living abroad.
As a non-member of the EU, Switzerland clearly does not feature high on the list of priorities. But during his six months holding the EU presidency, the government of Matteo Renzi will also have to make room for Swiss issues. Three thorny issues remain unresolved in the second half of this year.
An agreement is in sight on the differences over corporate tax. On July 1 the Swiss government initialed a joint declaration which should lead to an agreement to end special tax breaks granted by the cantons to international companies – holding, mixed and management companies – whose main business takes place abroad and who only have administrative activities in Switzerland.
These companies’ revenues are taxed at much lower levels than those of companies active in Switzerland. Brussels considers that these tax regimes violate the free exchange agreement of 1972. But following the agreement reached at the beginning of the month, the EU has announced it will forego retaliation measures planned against Swiss companies.
“On an international level, this joint declaration is a good thing. In effect, for years Switzerland tried to fend off pressure and opposition from the EU so that these tax regimes could distort free competition,” Sergio Rossi, an economics professor at the University of Fribourg, told swissinfo.ch.
“However on a national level we will have to see now which measures the cantons will take to hold on to those companies after the tax breaks have disappeared. Several cantons are tempted to bring down corporate tax for all companies, which risks exacerbating fiscal competition inside the country.”
In the negotiations on the taxation of savings, which began in January, it seems a solution for the revision of the existing accord is inching closer. Up to now Switzerland rejected the automatic exchange of bank information, demanded by the EU to fill in the gaps in the current accord to combat transnational tax evasion. But faced with pressure from the G20 and the Organisation for Economic Co-operation and Develpment, Switzerland is preparing to turn the page on banking secrecy.
Last month the Swiss government signed a declaration worked out by the OECD, on the basis of which the 34 member countries and 13 associate countries commit to adopting new international standards on the automatic exchange of information, which should be approved in September by the ministers of the G20. The EU wants to reach agreement with Switzerland by the end of the year.
In return for its adhesion to the automatic exchange of information, Switzerland has asked the EU to open the European market to its banks. But from now on, this type of market has no meaning, Sergio Rossi notes.
“For a long time in international organisations, Switzerland sought to achieve the maximum while giving the minimum, by following paradigms which are now outdated, such as banking secrecy,” he said. “But times have changed, and now, we risk missing the boat, which especially in a global economy, sails very quickly.”
Conflict of interest
Switzerland has had to deal with new negotiations with the EU on the free movement of people in the aftermath of the February 9 vote when a slim majority of voters approved an initiative to put the brakes on immigration. To respect the will of the people, the Swiss government intends to reintroduce quotas for foreign workers, an unacceptable solution for the EU.
“I see an even bigger problem here than with the tax accords, Micheloni said. “I believe the EU cannot and should not accept the introduction of quotas, because that would call into question the basis of the free movement and exchanges with Switzerland. If Bern wants to apply this measure, it should also face the consequences.”
Italy’s six-month presidency of the EU will probably not make the task of Swiss negotiators any easier. Italy has interests to defend in the three main unresolved issues between Bern and Brussels, and those interests don’t correspond to Switzerland’s.
Numerous Italian companies have set up in Switzerland in recent years leading to funds, that would have been subject to taxes in Italy, sitting in Swiss banks while Italian immigration to Switzerland has taken off again after the economic crisis.
Although Italy is one of the only European countries to have placed Switzerland on the blacklist of countries non-cooperative in tax matters, the Italian government is now much more inclined to engage in dialogue, according to Micheloni, who belongs to the same political party as Renzi.
“The current climate is certainly different to what we saw in recent years, when former economics minister Giulio Tremonti flatly refused to meet the Swiss president. I think there is a willingness to get rid of these problems that complicate business between the two countries.”
Quotas for foreign workers
On June 20, the Swiss government presented its plan for the implementation of the initiative to ‘stop mass immigration’, accepted by a slim majority of Swiss voters on February 9 this year. The government declined to set a fixed goal to reduce the influx of foreign workers. Instead it plans to introduce ceilings and quotas, based on diverse economic and labour indicators.
According to the EU, the reintroduction of quotas violates the accord on the free movement of people between Switzerland and the European Union, which came into force gradually beginning in 2002. This accord, one of the fundamental elements of the first set of bilateral accords concluded between Bern and Brussels in 1999, offers Swiss citizens and those from the EU the right to live and work in each of the signatory countries. In the case of one accord being breached, the whole set of accords is at risk.
After the United States and China, Switzerland is the third largest export market for the EU. In 2012, Switzerland absorbed 7.9% of the products exported by the 28 countries. After China, Russia and the US, Switzerland is in fourth place for volume of imports to the EU. In 2012 Switzerland provided 5.8% of the goods imported by EU countries. For its part, the EU is Switzerland’s main economic partner. In 2012 the EU absorbed 56% of Swiss exports and 75% of Switzerland’s imports came from the EU.
(Sources: Eurostat, Swiss Federal Statistics Office)
By Armando Mombelli, swissinfo.ch
(Adapted by Clare O’Dea)