Switzerland's corporate tax system is expected to top the agenda on Monday at a meeting of Swiss government ministers and the European Commission executive in Brussels.This content was published on December 15, 2008 - 09:05
The talks come one week after European Union ministers issued a document listing key issues to be resolved between Brussels and Bern if bilateral relations are to be extended.
Swiss president Pascal Couchepin is leading the Swiss delegation, which includes Finance Minister Hans-Rudolf Merz and Justice Minister Eveline Widmer-Schlumpf.
Ahead of the meeting with European Commission president José Manuel Barroso, the Swiss government said discussions would "focus on the latest developments following the coming into force of the Schengen/Dublin agreements [last week] and the situation regarding the free movement of people".
The latter issue is a particularly sensitive topic since Swiss voters will decide in less than two months whether to extend the treaty to the two newest EU member states, Bulgaria and Romania.
The EU has threatened to revoke all of its bilateral treaties with Switzerland if the extension is rejected.
In the EU ministers' document, Brussels also wants to see Switzerland end what it says is discrimination of EU companies contracted to do work in the alpine nation. The EU has criticised the fact that these EU firms must register eight days in advance.
But perhaps the biggest sticking point is Brussels' disapproval of Switzerland's tax regime.
It has long claimed the practice of offering breaks to foreign holding companies is anti-competitive, which Switzerland has rejected as unfounded.
The EU ministers reiterated their argument on December 8, saying they were "greatly concerned that Switzerland applies cantonal tax policies which, from the EU's point of view, represent state aid".
The paper added that the tax system was incompatible with the bilateral treaties. The ministers said they expected "progress in all areas of cooperation" before any new bilateral treaties are signed.
Reading between the lines, analysts say talks on a free trade accord for agriculture and an electricity deal could be doomed if Switzerland does not make concessions.
Monday's talks are the fourth top-level meeting between Switzerland and the EU this year.
During his stay in Belgium, Couchepin will also hold talks with that country's prime minister, Yves Leterme.
Three years ago the European Commission launched an offensive against the Swiss corporate tax system.
The EC claimed the practice of offering breaks to foreign holding companies was anti-competitive. The issue has not yet been resolved.
Various Swiss cantons offer tailor-made tax perks to wealthy individuals, luring rich people and their tax revenues away from their home countries.
This became a theme of the French Presidential elections in 2006 when rock star Johnny Hallyday announced his intention to move to Switzerland.
Switzerland has long been regarded as a haven for tax evaders thanks to its banking secrecy laws.
Swiss bank UBS was this year implicated in an ongoing investigation in the United States.
Germany and France last month called on the OECD to blacklist Switzerland as an uncooperative tax haven.