March 18, 2013 / 3:07 PM / 5 years ago

Switzerland to prepare corporate tax reform by mid-year

* Follows criticism of Swiss system by Brussels

* EU has threatened countermeasures if no Swiss proposal

By Emma Farge

GENEVA, March 18 (Reuters) - Switzerland plans to present a reform of its corporate taxation law by mid-year, its finance minister said on Monday, bowing to pressure from Brussels after a row over the incentives it offers to multinationals.

Financial haven Switzerland is home to thousands of global companies including commodities trading giant Glencore and online retailer eBay.

But the European Union says non-EU Switzerland has used “unauthorised state aid” to lure firms by offering special cantonal tax rates on foreign revenues in a practise known as ring-fencing.

Brussels has threatened unilateral measures, which might include trade tariffs, if Switzerland does not reform.

“We have until mid-year to hand over the parametres of a possible solution to Ireland, which holds the current EU presidency and also the EU Commission. We will also do that together with the cantons,” Swiss Finance Minister Eveline Widmer-Schlumpf said in parliament on Monday.

She did not elaborate on the content of the reform, which is expected to take effect from 2018.

Reform proposals in Switzerland have included using so-called licence boxes to allow income from certain businesses such as intellectual property to be taxed at a lower rate.

The Geneva canton, home to commodity trading firms Vitol and Trafigura, has proposed a standard corporate tax rate of 13 percent for both foreign and domestic income. This compares with a current rate of around 24 percent for Geneva firms not qualifying for special tax rates.

“This reform has a threefold objective: ensure the effectiveness of our tax regime, an increase in its acceptance at an international level and, third, to secure the necessary financing,” Alexander Karrer, deputy secretary of the State Secretariat for International Financial Matters, said in a speech in Geneva last week.

Denknetz, a left-wing Swiss think tank, estimates Switzerland’s special tax regimes deprives other countries of up to 36.5 billion francs ($39 billion) in tax revenue each year - almost double the amount Spain’s government raised in corporate tax in 2011.

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