Switzerland Withdraws India’s ‘Most Favoured Nation’ Status, Citing Nestle SA Ruling

News, dated 11-12-2024

Switzerland suspended the Most Favoured Nation (MFN) clause in its double taxation avoidance agreement (DTAA) with India, effective January 1, 2025.

Following the MFN status suspension, Switzerland will no longer give the benefit of beneficial tax treatment to Indian residents. This implies that tax on income earned by Indian residents will be withheld at the rates specified in the India-Switzerland tax treaty only. For instance, dividends earned by Indian residents will be taxed at 10% in Switzerland under Article 10 of the DTAA instead of the current rate of 5%.

On December 11, 2024, the Swiss Finance Department announced that an Indian Supreme Court ruling in the Nestle from last year influenced this decision. The Supreme Court ruling in the case Nestle SA [2023] 155 taxmann.com 384 (SC)ruled in favour of Indian Tax authorities. It rejected the automatic application of the MFN clause under the India-Switzerland Tax Treaty.

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