Switzerland Suspends MFN Clause For India In Double-Taxation Treaty, Effective 2025

(MENAFN- KNN India) New Delhi, Dec 14 (KNN)
In a significant development that could potentially impact India's investment climate, Switzerland has announced the suspension of the Most Favoured Nation (MFN) treatment for India under their 30-year-old double-taxation avoidance agreement (DTAA).

The decision, stemming from a Supreme Court ruling in October 2023, marks a critical juncture in bilateral tax treaty relations.

The Swiss authorities, in an official statement dated December 11, declared that the MFN clause under the DTAA will cease to be effective from January 1, 2025.

This action follows the Indian Supreme Court's interpretation that the MFN clause does not automatically trigger without specific notification under the Income Tax Act.

According to the Swiss government communiqué, the suspension is predicated on the divergence in interpretations of the treaty provisions.

"In the absence of reciprocity, it therefore waives its unilateral application with effect from 1 January, 2025," the statement read, highlighting the complexity of the bilateral tax agreement.

The practical implications are substantial. Previously, Indian companies benefited from a reduced tax rate of 5 per cent on dividends and other incomes.

With the reversion to a 10 per cent residual rate, firms will face higher tax liabilities, potentially diminishing their competitive edge in the Swiss market.

Ajay Srivastava, Director, Global Trade Research Initiative, warned that the suspension could have broader ramifications.

He noted that the move might introduce frictions with other trade and investment partners, potentially impacting inbound and outbound investment flows across various sectors, including financial services, pharmaceuticals, and information technology.

Srivastava emphasised the need for India to adapt its treaty frameworks to contemporary business realities, particularly in digital and service sectors.

He stressed the importance of reducing tax uncertainties and promoting global competitiveness for Indian businesses operating internationally.

As the January 1, 2025 deadline approaches, all eyes will be on potential diplomatic and fiscal negotiations between India and Switzerland to address the underlying interpretative challenges of their double-taxation avoidance agreement.

(KNN Bureau)

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