Nestle Tax Ruling: Switzerland Ends India's Most Favoured Nation Status - What Does It Mean?

Switzerland suspended India's Double Taxation Avoidance Agreement (DTAA) between India and Switzerland. 

Switzerland Suspends DTAA: What Does It Mean?

The Swiss government suspended the Most Favored Nation (MFN) status for India citing Supreme Court's 2023 Nestle ruling. This means Switzerland will tax dividends that Indian entities will earn in Switzerland at 10 per cent from January 1, 2025, as against five per cent which was the case earlier. 

Switzerland Suspends DTAA: Indian Government Responds

India on Friday, 13th December 2024 said its double taxation treaty with Switzerland may require renegotiation in view of its trade pact with the member states of the European Free Trade Association (EFTA). The remarks by the spokesperson of the Ministry of External Affairs (MEA) came after the Swiss government suspended the most favored nation status (MFN) clause in the India-Switzerland Double Taxation Avoidance Agreement (DTAA). "My understanding is that with Switzerland, because of EFTA, the double taxation treaty that we have; it's going to be renegotiated. That is one aspect of it," MEA spokesperson Randhir Jaiswal said, PTI reported.

India and the EFTA member states of Norway, Switzerland, Iceland and Liechtenstein sealed a free trade deal in March. Under the mega trade deal, the four European countries are looking at making an investment of USD 100 billion in India over the next 15 years. The trade pact is yet to come into force.

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Switzerland Suspends DTAA: What Was The Nestle Agreement

In 2021, the Delhi High Court upheld the applicability of the residual tax rates in the Nestle case after taking into account the most favored nation clause in the double taxation avoidance treaty.

However, the Indian Supreme Court, in a decision on October 19, 2023, reversed the High Court’s decision and concluded that the MFN clause was not directly applicable in the absence of ‘notification’, in accordance with Section 90 of the Income Tax Act.

(PTI inputs)