Switzerland Revokes India’s MFN Status

Mumbai: Switzerland has suspended the Most-Favoured-Nation (MFN) status granted to India that could lead to higher taxes on Indian companies

operating in the European nation. Switzerland cited an adverse court ruling against Nestlé for the avoidance of double taxation concerning taxes on income.

Effective January 1, 2025, Indian companies operating in Switzerland will be subjected to a heightened withholding tax rate on income such as dividends and royalties generated in Switzerland. The new rule will impose a 10 percent tax on dividends earned by Indian entities.

This decision follows a ruling by the Indian Supreme Court in October 2023 which determined that the Double Tax Avoidance Agreement (DTAA) cannot be enforced unless it is notified under the Income-Tax Act. As a result, Swiss companies such as Nestlé face higher taxes on dividends. The Supreme Court ruling effectively overturned a Delhi High Court order that had ensured companies and individuals were not subject to double taxation while working in or for foreign entities.

Under the DTAA, the MFN clause allows treaty nations to avail of reduced tax rates on income such as dividends, royalties, or technical

fees. Switzerland’s statement highlighted that its interpretation of the MFN provision was not reciprocated by India. “In the absence of reciprocity, the Swiss competent authority waives its unilateral application with effect from 1 January 2025,” it stated.