The Swiss government has suspended the Most Favoured Nation (MFN) clause in the Double Taxation Avoidance Agreement (DTAA) between India and Switzerland, a move that may lead to higher taxes for Indian companies operating in Switzerland. This decision follows a 2023 Indian Supreme Court ruling which clarified that the MFN clause does not automatically apply when a country joins the OECD if the tax treaty predates its membership.
The suspension, effective January 1, 2025, means Switzerland will levy a 10% tax on dividends from Indian entities, instead of the previously expected 5%, due to the MFN clause. Swiss authorities had initially planned to reduce the tax rate to 5% retroactively from 2018, but the Indian Supreme Court ruling in 2023 reversed a lower court’s decision, leading to the suspension.
This change could impact Swiss investments in India, increasing tax liabilities for Indian firms in Switzerland and complicating international tax relations. It highlights the need for clarity and alignment in tax treaties between countries.
