Switzerland suspends Most-Favoured-Nation clause in tax avoidance pact with India
In a development that could hurt India’s investment climate and affect firms’ international taxation math, Switzerland has decided to suspend the Most Favoured Nation (MFN) treatment for India under the two countries’ 30-years old double-taxation avoidance agreement (DTAA), citing an October 2023 ruling against its validity by the Supreme Court on 11 petitions that were combined with a Nestle plea.
A statement by Swiss authorities dated December 11, said the MFN clause under the DTAA will no longer hold from January 1, 2025, considering that India’s apex court had said it does not get automatically triggered until notified under the Income Tax Act.
As per experts, this would mean increased tax liabilities for Indian entities operating in Switzerland and increases the complexities of navigating international tax treaties in an evolving landscape. Previously, Indian companies benefited from a reduced tax rate of 5% on dividends and other incomes, thanks to Switzerland’s earlier application of MFN benefits. With the reversion to a 10% residual rate starting January 1, these firms face higher tax liabilities, reducing their competitiveness compared to businesses from countries still benefiting from MFN provisions. Beyond its immediate fiscal impact, this development reflects broader trends in international taxation, with countries like India increasingly asserting stricter interpretations of treaty provisions to protect domestic tax revenues.
