According to the statement, in 2021, the Delhi High Court in the Nestle case upheld the applicability of the residual tax rates after taking into account the MFN clause in the double taxation avoidance treaty.
The Switzerland government has suspended the most favoured nation (MFN) status of India following the Supreme Court decision against Nestle in 2023. Now, the Indian companies operating in Switzerland will have to bear the brunt of the decision in the form of higher taxes. The companies will have to pay higher taxes from January 1, 2025.
The Swiss finance department issued a statement on December 11 which clearly cited that the Swiss government suspends the MFN status clause in the Double Taxation Avoidance Agreement (DTAA) between the two nations which will impact the Swiss investments in India. Under the MFN status , both countries give exemption in taxes to companies of both nations, but now they will have to pay more taxes.
Switzerland has cited the Supreme Court’s 2023 verdict against Nestle as the reason behind its move.
Now, Switzerland will tax dividends that Indian companies will earn in that country at 10 percent from January 1, 2025.
According to the statement, in 2021, the Delhi High Court in the Nestle case upheld the applicability of the residual tax rates after taking into account the MFN clause in the double taxation avoidance treaty. However, the Indian Supreme Court, in a decision dated October 19, 2023, reversed the 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”.
Commenting on the Swiss authority decision, Nangia Andersen M&A Tax Partner Sandeep Jhunjhunwala, said the unilateral suspension of application of the MFN clause under its tax treaty with India, marks a significant shift in bilateral treaty dynamics.