In a significant move that could have broad implications for Swiss investments in India, Switzerland has suspended the Most-Favoured-Nation (MFN) clause in the Double Taxation Avoidance Agreement (DTAA) with India. This suspension follows a ruling by the Indian Supreme Court, which determined that the DTAA cannot be enforced unless it is notified under India's Income-Tax Act. The Swiss government’s decision, announced on December 11, is expected to affect Swiss companies like Nestlé, which will now face higher taxes on dividends.
The MFN clause, part of the DTAA originally signed in 1994 and amended in 2010, provided Swiss companies with certain tax benefits in India. With this suspension, Swiss companies could be taxed more heavily in India, and Indian companies operating in Switzerland may also face increased tax burdens.
This decision follows the Supreme Court’s ruling in 2023, which overturned a Delhi High Court order that had ensured that foreign companies and individuals were not subject to double taxation. As a result, Swiss companies, including Nestlé, could see their tax liabilities rise.
The Swiss move comes at a delicate time, as it threatens to disrupt a $100 billion investment plan by the European Free Trade Association (EFTA) in India. The EFTA, which includes Switzerland, had committed to the investment over the next 15 years in a deal signed earlier this year. The suspension of the MFN clause now casts doubt on the future of this high-stakes investment and its potential impact on both economies.
