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EU/SWITZERLAND : BERNE AND LONDON AMEND THEIR BILATERAL TAX AGREEMENT.

Switzerland and the European Union may have done away with a serious obstacle to the development of their relations, on 20 March.

In parallel with a visit to Brussels by Swiss Confederation President Eveline Widmer-Schlumpf and Foreign Minister Didier Burkhalter, Berne and London signed a protocol amending the Rubik bilateral tax agreement they concluded in October 2011. The Commission disputed the lawfulness of certain of its measures, which impinge on the EU's savings taxation rules.

"The European Commission was able to waive its reservations concerning the compatibility of this agreement with EU law," reads a statement by the Swiss Finance Ministry. Taxation Commissioner Algirdas Semeta was more cautious at his meeting with Widmer-Schlumpf, because his staff still has to check whether the United Kingdom has kept its "commitments" to the EU executive, but appears to be "confident".

Through legal sleight of hand, Switzerland and the United Kingdom withdrew interest payments from the scope of their agreement, the substance of which nonetheless remains "unchanged," only its "legal structure" has been altered.

The amending protocol still provides for the levying in Switzerland of withholding at the source in full discharge of tax liability - an aspect challenged by the Commission - on the payment of interest to British citizens. But such levies will no longer be made in the framework of an international agreement that the Commission has the power to challenge.

If the Commission's green light for this arrangement is confirmed, another obstacle will have to be eliminated before Switzerland agrees to open negotiations on other matters of the greatest interest to the EU - savings taxation and business taxation, in particular: approval by Germany's parliament, where the Social Democrat opposition is baring its fangs, of Berne's Rubik agreement with Berlin.

It was obviously not by chance that Widmer-Schlumpf told Semeta that Switzerland will not be able to open formal talks before May on application of the code of conduct adopted by the 27 on business taxation; things should be clearer in Germany by then.

The future of relations between Switzerland and the Union will also depend on working out a solution to certain institutional problems the EU is set on addressing.

Switzerland-EU relations "are very good and we have a mutual interest in developing them further," commented European Council President Herman Van Rompuy after his meeting with the Swiss president. "However, the approach taken to date, based on classic international agreements in specific sectors, has reached its limits."

The Union wishes to "establish a more comprehensive and more stable cooperation framework" that can assure the "proper functioning" of the internal market, in which Switzerland is partly integrated. The EU therefore intends to set up mechanisms to guarantee "dynamic adaptation" of agreements between Switzerland and the EU to evolving legislation and case law, as well as effective surveillance and judicial scrutiny of enforcement of these agreements.

Van Rompuy said he hoped to see "substantial progress" made in the coming months. He is bound to be pleased over the announcement by European Commission President Jose Manuel Barroso that Switzerland will present proposals "in the coming weeks". Noting the importance of developing an "all-inclusive framework," Barroso gave Berne an opening: "An unambiguous political agreement would enable us to close the negotiations on certain subjects (especially energy) and to move forward on others (safety of chemicals, a subject to which Switzerland attaches a great deal of importance)."
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Publication:European Report
Date:Mar 21, 2012
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