Switzerland's MFN Clause Suspension: A Shift in Tax Tides for Indian Investments

The Swiss government has suspended the most favoured nation clause in its tax agreement with India, prompting potential consequences for Swiss investments in India. This suspension results in increased tax rates on dividends for Indian companies in Switzerland, reflecting a change in bilateral tax dynamics.

The Swiss government has stirred tax circles by suspending the most favoured nation (MFN) clause in its Double Taxation Avoidance Agreement (DTAA) with India. Experts warn this could lead to heightened tax burdens for Indian entities operating within Switzerland.

The suspension stems from a landmark 2023 ruling by India's Supreme Court, which declared that the MFN clause does not automatically activate when a nation joins the OECD, a stance contradicting earlier interpretations. This legal clarification has Switzerland reconsidering its tax treaties, impacting the rate Indian companies will pay from January 1, 2025.

Industry voices, including Nangia Andersen M&A Tax Partner Sandeep Jhunjhunwala, emphasize the shifting dynamics this decision introduces. He notes the necessity for synchronized treaty interpretations to maintain international tax stability.

(With inputs from agencies.)