The European Union has deemed Switzerland to be partially compliant on tax matters by placing the alpine state on a grey list of “non-cooperative jurisdictions for tax purposes”.
There were fears that Switzerland would be black-listed after voters rejected corporate tax reforms earlier this year.
Until now, each EU member state had its own list of non-tax compliant countries. On Tuesday, EU finance ministers unveiled a central list stating the tax compliance, or otherwise, of non-EU trading partners. The black list mainly contains well known offshore tax havens.
It was partly inspired by the Panama Papers exposé of how law firms in tax havens work with multinationals to help them artificially reduce tax bills.
The EU index measures the transparency of each country’s tax regime, tax rates and whether its tax system encourages multinationals to unfairly shift profits to low tax regimes to avoid higher duties in other states.
In recent years, Switzerland has effectively abolished banking secrecy that allowed individuals to hide their wealth from their own country’s tax inspectors. It has also tightened its tax rules to comply with Organisation for Economic Co-operation and Development (OECD) requirements.
But corporate tax remains an unresolved issue between Switzerland and the EU. The current model allows cantons to tax the overseas earnings of multinationals at a lower rate than domestic profits, allowing big firms to artificially book profits made abroad in Switzerland.
In February, voters backed a referendum to reject government plans to overhaul the Swiss company tax system, which planned to outlaw this system. Voters believed the new regime would unfairly benefit big companies at the expense of smaller firms and individuals.
The government is now working overtime to draft new proposals that would replace existing tax privileges. It faces a tricky balancing act between retaining Switzerland’s global tax competitiveness and convincing the population that they would not foot the bill.
The EU’s blacklist of uncooperative tax regimes contains 17 states. But last month British NGO Oxfam published a report called “Blacklist or Whitewash” that called for 35 countries, including Switzerland, to be black-listed.
On Tuesday, the Tax Justice Network, expressed its “deep frustration at the lack of effective action being taken by the EU”.
“Rather than have a list of tax havens based on an objective set of criteria, as originally envisaged, the list appears to be a political fix with EU members picking their least favourite countries to name and shame,” said Alex Cobham, chief executive of the Tax Justice Network.
“The result of the flawed blacklisting process is a politically led list, that includes only the economically weak and politically unconnected.”
The Tax Justice Network repeated its call for a global convention on tax and transparency, “to create a level playing field that treats all jurisdictions fairly – and provides the basis for meaningful sanctions to end tax haven behaviour once and for all”.
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