The tax bureaucrats at the European Commission apparently believe that low tax rates and territorial taxation (the common‐sense principle of only taxing income earned inside national borders) are a violation of free trade rules. The Swiss, not surprisingly, have a different perspective. This European fight has long‐term implications for America. If the Euro‐crats succeed in characterizing good tax policy as an unfair trade subsidy, it will be only a matter of time before high‐tax nations use the same theory at the World Trade Organization. Ideally, Switzerland will hold firm and this will never happen. As explained by tax-news.com, the EU has very little leverage in this battle unless they are willing to impose protectionist barriers against Switzerland, but there are a number of low‐tax EU nations that presumably would side with Switzerland and block any sanctions:
Switzerland has rejected criticism from the European Commission of corporate tax rates in some cantons, saying it will not yield its sovereignty over this issue. …Finance Minister Hans‐Rudolf Merz shot down the EU proposal, saying in Bern that there was nothing to negotiate. …The commission wants the Swiss to change tax rules that it claims offer unfair advantages to firms operating out of Switzerland. It said low corporate taxes offered by cantons such as Obwalden and Zug violated a 1972 trade agreement, calling it a disguised state subsidy. …Merz said he does not fear a backlash from Brussels since so far all the talk is about negotiations. He reckons that sanctions are also unlikely, as some EU member states would probably not back them. The finance minister admitted though that the European initiative was aimed at stopping firms – and their tax money – leaving the union for Switzerland’s greener pastures.