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Switzerland has revoked the most favoured nation (MFN) status granted to India, following the Supreme Court’s decision against Nestle in 2023. This move will result in Indian companies operating in Switzerland having to pay higher taxes from January 1, 2025. The decision was announced by the Swiss finance department on December 11, citing the Supreme Court’s verdict against Nestle as the reason behind the move.
Under the MFN status, both countries provide tax exemptions to companies of each other. However, with the suspension of this status, Indian companies will now have to pay higher taxes in Switzerland. The decision will impact Swiss investments in India and is expected to have a significant impact on bilateral treaty dynamics.
The decision comes after the Delhi High Court’s 2021 ruling in the Nestle case, which upheld the applicability of residual tax rates after considering the MFN clause in the double taxation avoidance treaty. However, the Indian Supreme Court, in its 2023 decision, reversed the lower court’s ruling and stated that the MFN clause was not directly applicable without a notification in accordance with Section 90 of the Income Tax Act.
This unilateral suspension of the MFN clause by Switzerland marks a significant shift in bilateral treaty dynamics. It is expected to have a significant impact on Indian companies operating in Switzerland, who will now have to bear the brunt of higher taxes. The decision will also impact Swiss investments in India, as companies will now have to pay higher taxes on dividends earned in the country.
This move by Switzerland is a setback for India, as it will result in a loss of tax benefits for Indian companies operating in the country. It also highlights the need for India to review its tax treaties and ensure that they are in line with international standards. The impact of this decision on bilateral trade and investment between the two countries remains to be seen.