The union government might renegotiate its double taxation treaty with Switzerland, said the spokesperson of the Ministry of External Affairs (MEA) on Friday, after Swiss officials announced the suspension of the most favoured nation status (MFN) clause in the Double Taxation Avoidance Agreement (DTAA) between the two countries.
MEA spokesperson Randhir Jaiswal said that this move is in connection with the trade pact between India and the member states of the European Free Trade Association (EFTA).
“My understanding is that, with Switzerland, because of EFTA, the double taxation treaty that we have …is going to be renegotiated,” Jaiswal elaborated while answering a query at his weekly media briefing.
Switzerland, however, cited a 2023 ruling by the Supreme Court of India that reversed the Delhi High Court judgment, where Nestle sought a refund on withholding tax. This action by Nestle was in line with the 2021 announcement by Swiss authorities.
The European nation then said that Indian residents receiving dividends between July 2018 and April 2020 from Swiss sources could claim benefits of the treaty and claim a refund of the withholding tax in line with the DTC.
Suspension of MFN status to invite 10 per cent tax on dividends earned in Switzerland
However, the Swiss government said that they did not feel the same interpretation of the DTC was being observed from the Indian side after the apex court even cited that the MFN clause did not apply to the Nestle ruling back in 2023.
The suspension of the MFN status means that Switzerland would tax dividends earned by Indian entities in the country at 10 per cent from the start of 2025.
Back in March this year, India signed a free trade deal with EFTA member states that included Norway, Liechtenstein, Iceland, and Switzerland, where the four European nations expressed their interest in investing around USD 100 billion in India over the next 15 years.
Since the trade deal is yet to come into force, it remains to be seen what changes India will make to the pact, given the Swiss Finance Department's suspension of the MFN clause between both countries.
