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Switzerland revokes India's "Most Favoured Nation" (MFN) status.

Why did Switzerland revoke India's MFN status?

Switzerland revoked India's MFN status following a 2023 ruling by the Indian Supreme Court in the Nestlé case. The court stated that the MFN clause does not apply automatically when a country joins the OECD, mainly if a prior tax agreement exists. The court ruling contradicted Switzerland's interpretation of the Double Taxation Avoidance Agreement (DTAA) with India, leading to the suspension of the MFN clause. 

What is the MFN clause, and how does it work?

The MFN clause ensures that if one country provides a trade or tax benefit to another, that benefit must be extended to all other countries in a similar agreement. It eliminates discrimination, and makes the trading environment more equitable and predictable.  

What does Switzerland’s move mean for India-Switzerland relations?

From January 1, 2025, India will pay a higher withholding tax, up from 5% to 10%, on dividends paid by Swiss entities, which could have a negative impact on Indian companies operating in Switzerland and reduce Swiss investment in India. 

The move highlights the complexities of international tax treaties, as well as the need for more clear international agreements.

How will this affect Indian companies operating in Switzerland?

Indian companies with subsidiaries in Switzerland may face increased financial burdens. The increased withholding tax on dividends may result in higher tax liabilities for these companies. This may affect the financial viability of operations and result in complex tax planning requirements for Indian firms.

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NDTV