Indo-Swiss Relation: Switzerland has withdrawn the Most Favored Nation (MFN) status given to India. Indian companies will have to face more tax cuts on income earned in Switzerland from January 1, 2025. Withdrawal of MFN status means that Switzerland will impose a 10 percent tax on dividends earned by Indian firms in that country from January 1, 2025. After this decision, Indian companies working in Switzerland are likely to be taxed more and Swiss investment in India is likely to be affected. Switzerland's Finance Department gave information about the withdrawal of MFN status in a statement. 

Switzerland to introduce 10% tax rate

Now after the removal of MFN status, Switzerland will apply 10 percent tax rate on dividends for Indian tax residents claiming refund and Swiss tax residents claiming foreign tax credit from January 1, 2025. Switzerland's finance department has taken this step after the Supreme Court's decision against Nestle. 

This step is related to the decision of the Supreme Court of India regarding Nestle

This step has been taken in view of a decision of the Supreme Court of India last year. Switzerland cited a decision of the Supreme Court in a case related to Nestle in 2023 for its decision. The Supreme Court had said in its decision in 2023 that DTAA cannot be implemented until 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 upheld the compliance of the outstanding tax rate in view of the Most Favored Segment in the Double Tax Avoidance Agreement (DTAA) in 2021, but the Supreme Court overturned this order in a decision dated October 19, 2023. Nestle, which is engaged in the packaged food business, is headquartered in the city of Vevey, 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 on income.

What is the answer of the Foreign Ministry

India's foreign ministry said on Friday that its double taxation treaty with Switzerland may need to be renegotiated in view of the trade agreement with member countries of the European Free Trade Association (EFTA). "My understanding is that because of the EFTA, our double taxation treaty with Switzerland will be renegotiated. This is one aspect of it," said foreign ministry spokesman Randhir Jaiswal.

What tax experts say

On this decision of the Swiss government, Sandeep Jhunjhunwala, tax partner at tax consultancy Nangia Andersen, said that now the tax liability of Indian companies working in Switzerland may increase. Amit Maheshwari, tax partner at AKM Global firm, said that this may affect Swiss investments in India because income earned on or after January 1, 2025 may be taxed at the rates mentioned in the original double taxation treaty.