Mint Explainer: Why Switzerland withdrew MFN status in its tax treaty with India

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Subscribe to enjoy similar stories. Switzerland has suspended the Most-Favoured-Nation (MFN) clause in its Double Taxation Avoidance Agreement (DTAA) with India, significantly altering the tax treatment of cross-border dividends. Beginning 1 January 2025, dividend payments from Swiss entities to Indian investors will be taxed at 10%, double the current 5%.

Switzerland has attributed this change to a 2023 Indian Supreme Court ruling in a case involving Nestle SA and others, which clarified that MFN clause benefits require explicit notification by the Indian government under the Income Tax Act, adding procedural hurdles to treaty implementation. There are concerns that the increased tax burden on Indian companies could discourage investments in Switzerland. Similarly, Swiss investments in India may experience headwinds as businesses grapple with the Supreme Court’s stricter stance on MFN benefits.

Mint takes a closer look at the Nestle case and the broader legal and policy developments that led to Switzerland’s decision. DTAAs are bilateral treaties aimed at avoiding double taxation, encouraging cross-border investments, and benefiting non-resident Indians (NRIs). India has signed such agreements with nearly 100 countries, including Switzerland, which first entered into a DTAA with India in 1995, amended in 2010. The MFN clause, a critical component of many DTAAs, ensures that favourable tax rates granted to one treaty partner are automatically extended to others under similar conditions.