Does the suspension of India’s ‘MFN’ clause by Switzerland impact international investments?

After the 2023 case which was ruled by SC stated that the MFN (Most Favoured Country) clause in tax treaties between the countries with India doesn’t apply it directly if another countries join the OECD (Organisation for Economic Cooperation and Development). The MFN clause will not apply automatically under DTAA, due to the Income Tax Act, 1961. It involved the Nestle company along with Lithuania and Colombia who joined through OECD which offered lower taxes rates in some specific incomes to India.

The Switzerland government unveiled an announcement on December 11, 2024, that they have decided to suspend the Most Favoured Nation (MFN) clause from the Double Tax Avoidance Agreement (DTAA) with India which will come into effect from January 1, 2025.

“In the absence of reciprocity, it therefore waives its unilateral application with effect from 1 January 2025”, Swiss Authorities.

With this the Indian entities in Switzerland have to pay 10 percent of tax from January 2025. Many economic experts and Indian entities in Swiss & other European countries expressed dismay towards their suspension of MFN. It is expected that they might have to encounter higher tax liabilities in future.

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