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Switzerland has recently suspended the Most Favoured Nation (MFN) status for India, which could have significant tax implications for Indian companies operating in the country. This move disrupts the preferential trade framework that India previously enjoyed under the World Trade Organization’s (WTO) MFN principle.
The suspension of the MFN status means that Indian goods and services may now face higher tariffs, additional trade barriers, and reduced access to the Swiss market. This could have a significant impact on sectors like financial services, pharmaceuticals, and IT, which have a strong presence in Switzerland.
The decision by the Swiss government follows a ruling by the Supreme Court of India last year, which stated that the MFN clause does not automatically trigger when a country joins the OECD. This means that Indian companies operating in Switzerland will now have to pay a 10% tax on dividends and other incomes, up from the previous 5%, effective January 1, 2025.
The suspension of the MFN clause is a setback for Indian firms operating in Switzerland, according to experts. It introduces tax challenges and could potentially lead to higher costs for Indian companies. Investors need to keep an eye on sectors like pharmaceuticals, IT, financial services, and engineering goods, which could be impacted by this decision.
In FY 2023-24, bilateral trade between India and Switzerland was about $23.76 billion, with the majority of this being imports from Switzerland. This decision could have a significant impact on this trade partnership, as well as on the $10.72 billion in foreign direct investments that India has received from Switzerland between April 2000 and September 2024.
Overall, the suspension of the MFN status for India by Switzerland introduces tax challenges and potential trade barriers for Indian companies operating in the country. Investors need to closely monitor the situation and its impact on key sectors, as well as the bilateral trade partnership between the two countries.