Why the Swiss revoked MFN status for India in tax treaty

Switzerland attributed the change to a 2023 SC ruling in a case involving Nestle SA, others

- Krishna Yadav

Switzerland has suspended the most favoured nation (MFN) clause in its double taxation avoidance agreement (DTAA) with India. Beginning 1 January 2025, dividend payments from Swiss entities to Indian investors will be taxed at 10%, double the current 5%.

Switzerland attributed this change to a 2023 Indian Supreme Court ruling in a case involving Nestle SA and others, which clarified that MFN clause benefits require explicit notification by the Indian government under the Income Tax Act, adding procedural hurdles to treaty implementation.

There are concerns that the increased tax burden on Indian companies could discourage investments in both countries. Mint takes a closer look at the Nestle case and the broader legal and policy developments that led to Switzerland's decision.

What are DTAA and MFN?

DTAAs are bilateral treaties aimed at avoiding double taxation, and encouraging cross-border investments. India has signed such agreements with nearly 100 countries, including Switzerland, which first entered into a DTAA with India in 1995, amended in 2010.

MFN, a component of many DTAAs, ensures favourable tax rates granted to one treaty partner are automatically extended to others under similar conditions. So, if India signs a treaty with a third OECD country offering lower tax rates, those rates would apply to Switzerland under the MFN clause.

Legal precedents: Steria to Nestle