The MFN clause in tax treaties ensures that any favorable tax treatment extended to a third country is automatically applied to the treaty partner. However, a 2023 ruling by the Indian Supreme Court clarified that such benefits require explicit notification under Indian law, rather than automatic application. In response, Switzerland has chosen to suspend the MFN clause in its DTAA with India.
Impact on Indian Companies:Over 140 Indian companies with investments in Switzerland are expected to be affected by this change. The key implications include:
Increased Tax Liability: The withholding tax on dividends will double from 5% to 10%, leading to higher tax expenses for Indian investors receiving dividends from Swiss entities.
Potential Investment Reevaluation: The increased tax burden may prompt Indian companies to reassess the financial viability of their investments in Switzerland.
Operational Costs: Higher taxes could lead to increased operational costs for Indian businesses operating in or with Swiss counterparts.
Broader Implications:This development may influence other countries to reconsider the application of MFN clauses in their tax treaties with India, potentially affecting international trade and investment dynamics.
For a more detailed analysis, you might find the following discussion informative:
