Switzerland suspends ‘most favoured nation’ status to India, cites SC's Nestle case ruling

This means that from January 1, dividends of Indian entities will be taxed at 10% in Switzerland.

Dividends of Indian entities will be taxed at 10% in Switzerland from January 1 as the European nation has suspended the most favoured nation (MFN) clause in its Double Taxation Avoidance Agreement (DTAA) with India.

A Swiss flag flutters on the headquarters of Nestle in Vevey, Switzerland, November 25, 2024. REUTERS/Denis Balibouse

In a December 11 statement, the Swiss finance department said the move follows a ruling by Supreme Court of India last year that the MFN clause doesn't trigger if a country joins the OECD (Organisation for Economic Cooperation and Development) and India signed a treaty with the country before that country became an OECD member.

India signed tax treaties with Colombia and Lithuania for tax rates on certain types of income which were lower than the rates it provided to OECD nations. Colombia and Lithuania later joined the grouping.

In 2021, Switzerland interpreted that Colombia and Lithuania's OECD membership meant a 5% rate for dividends would apply to its tax treaty with India under the MFN clause, rather than the 10% outlined in the agreement.

In October 2023, the Supreme Court of India reversed a lower court's decision, and concluded that the applicability of MFN clause provided “was not directly applicable in the absence of 'notification' in accordance with Section 90 of the Income Tax Act.”

That case involved Nestle, a Swiss multinational food and drink processing conglomerate based in the country's Vevey town.

India responds

Meanwhile, the Ministry of External Affairs (MEA) said the double taxation treaty may require a “renegotiation” with Switzerland in view of India's trade pact with the member states of the European Free Trade Association (EFTA).

"My understanding is that because of EFTA, the double taxation treaty that we have; it's going to be renegotiated. That is one aspect of it," MEA spokesperson Randhir Jaiswal said.

India and the EFTA member states of Norway, Switzerland, Iceland and Liechtenstein sealed a free trade deal in March. Under it, the four European countries are looking to invest $100 billion in India over the next 15 years.

(With PTI inputs)