Indo-Swiss Relation: Switzerland has withdrawn the Most Favored Nation (MFN) status given to India. Indian companies will have to face higher tax cuts on income earned in Switzerland from January 1, 2025. Withdrawal of MFN status means that from January 1, 2025, Switzerland will impose a 10 percent tax on dividends earned by Indian firms in that country. After this decision, there is a possibility of higher taxes being imposed on Indian companies operating in Switzerland and Swiss investment in India being affected. The Finance Department of Switzerland gave information about withdrawal of MFN status in a statement.
Switzerland will impose 10 percent tax rates
Now after the removal of MFN status, Switzerland will impose 10 percent tax rates on dividends for Indian tax residents claiming refund and Swiss tax residents claiming foreign tax credit from January 1, 2025. The Finance Department of Switzerland has taken this step after the Supreme Court’s decision against Nestle.
This step is related to Nestle’s decision of the Supreme Court of India
This step has been taken regarding a decision of the Supreme Court of India last year. For its decision, Switzerland cited a decision of the Supreme Court in 2023 in a case related to Nestle. The Supreme Court had said in its judgment in 2023 that DTAA cannot be implemented unless it is notified under the Indian Income Tax Act.
According to the statement of the Swiss government, in the Nestle case, the Delhi High Court had maintained the compliance of the outstanding tax rate keeping in mind the most favored segment in the Double Tax Avoidance Agreement (DTAA) in 2021, but the Supreme Court on October 19, 2023 This order was overturned in a decision. Nestle, which is engaged in the business of packaged food, has its headquarters in Vevey city of Switzerland.
The Swiss Finance Department in its statement has announced the suspension of the MFN provision under the agreement between the two countries to avoid double taxation of income.
What is the reply of the Ministry of External Affairs
India’s External Affairs Ministry said on Friday that its double taxation treaty with Switzerland may need to be renegotiated in view of the trade agreement with European Free Trade Association (EFTA) member countries. External Affairs Ministry spokesperson Randhir Jaiswal said, "I think our double taxation treaty with Switzerland will be renegotiated because of EFTA. This is one aspect of it."
What do tax experts say
On this decision of the Swiss government, Sandeep Jhunjhunwala, tax partner at tax consultancy Nangia Anderson, said that now the tax liability of Indian companies operating in Switzerland may increase. Amit Maheshwari, tax partner at AKM Global firm, said this could impact Swiss investments in India as income earned on or after January 1, 2025, may be taxed at the rates specified in the original double taxation treaty. < /p>
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