Switzerland Withdraws MFN Clause for India in Tax Treaty

Switzerland has suspended the Most Favoured Nation (MFN) clause in its Double Taxation Avoidance Agreement (DTAA) with India. This move is expected to impact Swiss investments in India and increase tax burdens on Indian companies operating in Switzerland.

The Swiss finance department, in its December 11 statement, cited a 2023 Indian Supreme Court ruling as the basis for this decision. The ruling clarified that the MFN clause does not apply automatically when a country joins the OECD, provided India’s tax treaty with that nation predates its OECD membership.

India’s tax treaties with Colombia and Lithuania offered lower tax rates on certain income types compared to OECD countries. After these nations joined the OECD, Switzerland interpreted that the MFN clause allowed a reduced 5% tax rate on dividends in its treaty with India. However, following the MFN suspension, dividends earned by Indian entities in Switzerland will be taxed at 10% from January 1, 2025.

This suspension signifies a shift in bilateral tax treaty dynamics, with experts highlighting increased complexities for Indian companies navigating international tax laws.

Source : Switzerland suspends most favoured nation status to India – The Tribune