Switzerland has suspended the MFN clause in its tax treaty with India, raising the dividend tax rate for Indian residents to 10% starting January 2025. This decision follows an Indian Supreme Court ruling clarifying MFN applicability, impacting cross-border investments and tax agreements between the two nations.
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Switzerland has suspended the Most Favoured Nation (MFN) clause in its Double Taxation Avoidance Agreement (DTAA) with India. This change, effective January 1, 2025, means Indian residents will face a higher tax rate of 10% on dividends from Swiss entities, instead of the reduced 5% allowed under MFN
provisions. The decision follows an Indian Supreme Court ruling that clarified the MFN clause requires explicit notification for applicability. This move could impact Indian businesses operating in Switzerland and Swiss investments in India
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Chapter: Suspension of MFN Clause by Switzerland
1. Introduction
- Overview of the India-Switzerland DTAA.
- Explanation of the MFN clause and its purpose in tax treaties
2. The Suspension Announcement
- Details of Switzerland’s decision effective January 2025.
- Reasons cited, including the Indian Supreme Court ruling on MFN applicability.
3. Tax Implications
- Increased tax rate for Indian residents on Swiss dividends (10% vs. 5%).
- Potential effects on Indian and Swiss investments.
4. Legal and Economic Context
- Key rulings from Indian courts, including the Nestlé case.
- Broader implications for international tax agreements
5. Conclusion
- Future of India-Switzerland tax relations
- Need for policy clarity to safeguard bilateral investments
