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EU seeks talks with Switzerland on company tax breaks

European Union regulators are seeking talks with Switzerland over regional tax laws that the EU claims gives the nation an unfair advantage in persuading companies to relocate.

The European Commission in Brussels said some Swiss states, known as cantons, give companies a tax break on profits abroad, violating the country's free-trade agreement with the EU. Switzerland won't negotiate on the issue, Finance Minister Hans-Rudolf Merz told journalists today. Swiss cantons have used tax advantages to lure companies such as Kraft Foods Inc., the US food company that plans to consolidate its London and Vienna offices into a new European headquarters near Zurich. The national government says the policy adds 3 billion Swiss francs (€1.8 billion) a year to the economy.

„The commission would not be opposing lower tax rates in Switzerland if they weren't applied in a discriminatory manner,” spokeswoman Emma Udwin said to journalists today. „What the commission considers unacceptable are regimes which discriminate between domestic and foreign companies.” Udwin said the commission can seek certain sanctions under the 1972 treaty with Switzerland. „We're not threatening,” she said at a daily news conference. „We really hope that is not a route that we will need to travel.”The commission said in a statement today, it is seeking approval from EU governments to open formal talks aimed at persuading the Swiss to drop the tax exemptions.

In a March 2006 paper posted online, the Swiss government said the tax arrangements aren't part of the agreement and don't constitute subsidies that distort trade. Merz said the government will explain its position to the commission, rather than negotiate over changes to its laws. „The government will not let the attractiveness of Switzerland be diminished,” Merz said at a news conference in Bern, the capital.
Cantons such as Zug and Schwyz, near Zurich, tout lower tax rates as reasons to start and locate businesses in the region. Zug says on its Web site that it taxes corporate profits at 13%, on average, versus 25% to 38% in neighboring countries. Other regions of the country have landed the European offices of US companies including Monsanto Co., Merisant Worldwide Inc. and Baxter International Inc. (Bloomberg)