The European Commission is challenging certain Swiss tax regimes under the 1972 EU – Swiss Agreement. These regimes fully or partially exempt profits generated abroad from cantonal and municipal company tax, and encourage multinationals to establish their headquarters in cantons such as Zug and Schwyz. As most of these multinationals are active in the EU, these tax regimes may affect trade between the EU and Switzerland, and as such the Commission reviewed their compatibility with the State aid clause in the 1972 EU – Swiss Agreement. Although the Commission is not against tax competition, it cannot accept schemes that treat domestic and foreign source income differently. Switzerland is requested to amend these tax schemes to bring them in line with the terms of the Agreement. In addition, the Commission has asked the Council for a mandate to start negotiations with Switzerland in order to find a mutually acceptable solution.