World Bulletin / News Desk

The Swiss government said on Friday it is doing away with a frequently criticized privileged tax status for holding companies based in Switzerland, which will lead to a billion-franc shortfall in annual tax revenue.

"While these arrangements made a valuable contribution to the business location's appeal in the past, they are no longer compatible with the international standards, which is proving to be a growing disadvantage for companies engaged in cross-border activities," the Swiss government said in a statement.

For years, the European Union has taken issue with some of the Alpine nation's corporate tax policies, notably how its separate cantons, or states, charge less tax on foreign-earned income than on income earned inSwitzerland.

Switzerland's proposal to drop the privileges comes one year after it agreed with the EU to scrap long-cherished rules on corporate tax.

The government estimates that the move, which is being sent to parliament for debate, will take roughly 1.3 billion Swiss francs ($1.38 billion) off its annual budget.

The G7 has a year-end deadline for implementing an anti-tax avoidance action plan - known as the anti-BEPS (Base Erosion, Profit Shifting) directive - to tackle the way corporations shift profits from one country to another in order to reduce tax.