Starting from January 1, 2025, Switzerland will suspend MFN clause in its Double Taxation Avoidance Agreement (DTAA) with India.
- The decision is followed by Supreme Court ruling in 2023, determining that MFN clause isn't automatically triggered when a country joins OECD if Indian government signed a tax treaty with that country before it joined the organisation.
- SC said that DTAA cannot be enforced unless it is notified under Income-Tax Act, 1961.
- India-Switzerland DTAA was entered into force in 1994 for the avoidance of double taxation with respect to taxes on income.
Impact of suspension of MFN
- Higher tax liabilities for Indian companies: More tax burden, as withholding tax on dividends from Switzerland will rise to 10% from 5%.
- Effects on Swiss investments in India: Swiss companies that receive dividends from India will continue to face a 10% withholding tax, as per India-Switzerland DTAA.
- Re-evaluation of MFN clauses by other countries: This could prompt other nations to reconsider how MFN clause is applied in their own tax treaties with India.
- No change for other DTAA benefits or European Free Trade Association (EFTA) investments will remain unaffected.
Most Favoured Nation (MFN)
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