The issue traces back to a 2023 ruling by Supreme Court, which stated that the MFN clause in the DTAA does not automatically apply. The court clarified that India must issue explicit notifications for the clause to take effect.
Switzerland contested this interpretation, citing that it deprived the country of benefits that India extends to nations with more favourable tax treaties. Swiss officials highlighted discrepancies in divided taxation, noting that India’s agreements with countries like Slovenia and Lithuania offer better terms. Citing unfair treatment and a lack of reciprocity, Switzerland chose to suspend the MFN clause.
Nestle and other Swiss enterprises stand to bear the brunt of this decision. With the MFN clause no longer in effect, these companies would face a higher dividend tax rate of up to 10 per cent, compared to the reduced 5 per cent rate they previously enjoyed. Nestle had appealed for the lower tax rate, but the Supreme Court dismissed the plea. The resulting increase in tax liabilities would squeeze Nestle’s profits and push it to adjust its pricing strategies in India.
