Switzerland scraps MFN status to India over SC verdict on Nestle

Switzerland has withdrawn the MFN status granted to India following an adverse court ruling against Nestle, a move that will result in adverse tax implications for Indian entities operating in the European nation.

With this, from January 1, 2025, Indian companies will be subject to a higher withholding tax on income generated in Switzerland.

In a statement, Switzerland announced suspension of the application of the most favoured nation (MFN) clause of the protocol to the agreement between the Swiss Confederation and the Republic of India for the avoidance of double taxation with respect to taxes on income.

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Switzerland cited a ruling by Indian Supreme Court in a case relating to Vevey-headquartered Nestle for its decision to withdraw the MFN.

This means that Switzerland will tax dividends that Indian entities will earn in that country at 10 per cent from January 1, 2025.

Significant shift in bilateral treaty

Switzerland’s move marks a significant shift in bilateral treaty dynamics and will result in a big impact on Indian companies operating there as well as on Swiss investments in India.

In its official statement on December 11, the Swiss finance department named the Supreme Court of India and cited its 2023 ruling as the reason for its decision to remove India's MFN status. In its order, the Supreme Court had said that the MFN clause between two nations does not apply automatically when a country joins the OECD, especially if the Indian government already had a prior tax treaty with that country before joining the grouping.

The Organisation for Economic Co-operation and Development (OECD) was established in 1961 and is headquartered in Paris. It calls itself a forum and knowledge hub for data, analysis, and best practices in public policy to build stronger, fairer, and cleaner societies - helping to shape better policies for better lives. It works closely with policy makers, stakeholders and citizens to establish evidence-based international standards and to find solutions to social, economic and environmental challenges.

India talks of renegotiating treaty

On the other hand, India on Friday said its double taxation treaty with Switzerland may require renegotiation in view of its trade pact with the member states of the European Free Trade Association (EFTA).

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The remarks by the spokesperson of the Ministry of External Affairs (MEA) came after the Swiss government suspended the most favoured nation (MFN) clause in the India-Switzerland Double Taxation Avoidance Agreement (DTAA).

“My understanding is that with Switzerland, 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. He was responding to a question on the issue at his weekly media briefing.

India and the EFTA member states of Norway, Switzerland, Iceland and Liechtenstein sealed a free trade deal in March. Under the mega trade deal, the four European countries are looking at making an investment of USD 100 billion in India over the next 15 years. The trade pact is yet to come into force.