Full-text search

Home Main Navigation

End Main Navigation

Home Content Area

Home Navigator

  • Home

End Navigator

Print version Print | share: Icon Facebook Icon Twitter Icon Google+ Icon LinkedIn 

Federal Council report on state aid to companies

Bern, 07.11.2007 - The Federal Council today approved a report on "State aid to companies: company taxation and tax competition – developments in the European Union". The report comes to the conclusion that the EU pursues the approach of restricted tax competition which is complemented by an extensive policy of state aid. In contrast, Switzerland’s stance on tax competition is positive and this is reflected accordingly in its regulatory framework. At the same time, Switzerland makes only sparing use of direct state aid to individual companies.

The report was produced in response to a request made by the Committee for Economic Affairs and Taxation of the Council of States. The Committee for Economic Affairs and Taxation instructed the Federal Council in a postulate (07.3003) on 1 February 2007 to present a report on "new company taxation models applied in other countries, in particular those of important trading partners, and on aid provided to companies".

The report confines itself to an analysis of the European Union's policy on state aid as it is Switzerland's most important trading partner. It describes the regulatory framework of the European Union and the corresponding case law of the European Court of Justice. The first part provides a summary of the structure and workings of European law regarding state aid. The comments are substantiated using examples of state aid granted in the EU member states. The second part is devoted to tax competition in the EU. It shows what impact the code of conduct on company taxation and the fundamental ban on state aid contained in the EC Treaty have on tax competition in the EU. Finally, the ongoing reform of EU rules governing state aid, intended to provide more scope for state aid policies is explained.

The report concludes that all forms of state aid constitute an intervention in the free workings of the market and can therefore as a rule not be competition neutral. This is why European competition policy provides for a fundamental ban on state aid (Art. 87-89 of the EC Treaty). However, the EU's policy on state aid allows numerous exceptions which are deemed to be compatible with the Single European Market. Aid is not only allowed in the area of taxes, but in non-tax areas as well. Examples of admissible tax aid include direct or indirect aid to companies to develop certain economic sectors or encourage SMEs. In the last few years the European Commission has severely restricted the leeway for the member states in the tax sector with the code of conduct on company taxation. The EU is therefore critical of tax competition in terms of competition between member states.

Switzerland, however, is less inclined to provide direct aid, preferring instead to ensure the existence of a business-friendly economic framework. Part and parcel of this is a moderate tax burden for companies as well as for individuals. Tax competition creates important incentives and promotes innovation in the public sector. Switzerland is less inclined to provide state aid to companies because aid to individual companies or sectors very often distorts competition and is detrimental to efficiency. With an eye on Switzerland's position in terms of global locational competition, Switzerland's overriding consideration is the continued capacity to shape the taxation system on an individual and autonomous basis.

The EU also wishes to continue to strengthen the competitiveness of its member states. To this end, in 2006 the European Commission presented the State Aid Action Plan. A more harmonised and targeted state aid policy should emerge from this reform. Even if no increase in state aid is expected in terms of volume, the possibility of granting state aid in key sectors will be expanded.

Address for enquiries:

Raoul Stocker, Federal Tax Administration, Head of the Transfer Pricing Division, International Affairs, tel. 031 322 76 70
David S. Gerber, Federal Finance Administration, Head of Financial Markets and Services, Federal Finance Administration (FFA), tel. 031 325 15 28


Federal Department of Finance
Internet: http://www.efd.admin.ch