Switzerland Suspends MFN Status to India, Cites SC Ruling in Nestle Case

Switzerland has suspended the “Most Favoured Nation” (MFN) status in its Double Taxation Avoidance Agreement (DTAA) with India, meaning that starting January 1, dividends from Indian entities will be taxed at 10% in Switzerland.

The Swiss finance department announced the decision on December 11, citing a ruling by the Indian Supreme Court in 2023. The court’s decision stated that the MFN clause does not apply when a country joins the OECD (Organisation for Economic Cooperation and Development), and India has signed tax treaties with those countries before they became OECD members.

India had previously signed tax treaties with Colombia and Lithuania, setting lower tax rates on certain types of income than those given to OECD nations. After Colombia and Lithuania joined the OECD, Switzerland had interpreted that the MFN clause should reduce its dividend tax rate to 5%. However, the Supreme Court’s 2023 ruling reversed this interpretation, clarifying that the MFN clause only applies with a proper notification under India’s Income Tax Act.

The case in question involved Nestlé, the Swiss multinational food and drink company based in Vevey, Switzerland.

India Responds

In response, India’s Ministry of External Affairs (MEA) suggested that the double taxation treaty with Switzerland may need to be renegotiated due to India’s recent trade pact with the European Free Trade Association (EFTA), which includes Switzerland, Norway, Iceland, and Liechtenstein. Under this agreement, these four European countries are set to invest $100 billion in India over the next 15 years. MEA spokesperson Randhir Jaiswal indicated that the treaty’s renegotiation could be a part of this broader trade framework.