Switzerland rejected on Tuesday criticism from the European Commission on corporate tax rates in some of its cantons (states), saying it will not yield its sovereignty over this issue.

Switzerland is not part of the European interior market, and it is "unacceptable" for the European Union to impose its own competition rules on Switzerland, Swiss Finance Minister Hans- Rudolf Merz said in Bern.

Earlier in the day, the European Commission accused non-EU member Switzerland of violating a 1972 Free Trade Agreement by allowing individual cantons to set low tax rates to tempt foreign companies to relocate.

In a report, the Commission also called on Switzerland to amend its fiscal policy and negotiate with the EU. The demand immediately drew fierce reactions from Swiss politicians and business leaders.

In Bern, Merz said the EU demand was unacceptable and Switzerland had nothing to negotiate with the 25-nation bloc.

Merz called the European Commission's decision to push for talks unfounded. In his view, there are no contractual regulations between Switzerland and the EU that require the harmonization of company taxation.

He said the 1972 trade agreement invoked by Brussels "fails to deal with fiscal matters and is only applicable to certain categories of goods."

"It does not provide a sufficient legal basis to decide whether cantonal and local corporate taxes can distort competition," he added.