The European Union has recently warned Switzerland on the issue of tax breaks it offers to private firms who have established their headquarters there. The EU has observed that the tax breaks given to firms is unfair as they draw a distinct line between domestic and foreign income sources. Many private firms have already moved their headquarters to Switzerland in order to gain advantages. On profits made within the EU. On the other hand, Switzerland has refuted the allegation saying the argument was groundless. The Swiss government has said that there were no regulations between Switzerland and the EU on harmonizing tax arrangements. Therefore, the Swiss government argued that it was impossible to rules. In recent times, many giant foreign firms such as Google, Kraft and IBM, have moved their European head offices to Switzerland. Google is planning to expand its Zurich based office to make it its biggest office outside U.S. Law of Switzerland permits individual cantons to concede full or partial regional and company tax exemptions on profits generated abroad. And these tax incentives have attracted foreign firms as they can minimize their tax liabilities. The commission noted that the refusal to change those rules of Switzerland clearly breached a 1972 agreement between the EU and Switzerland not to offer subsidies, which would affect competition or level playing field. Despite not being an EU member it has agreed to follow most EU trade rules. However, this not clear yet that what step the commission would take if the dispute is not resolved.