MFN Clause Suspension Won’t Impact Investments In India Or TEPA Agreement: Report

Officials refused to share details on the issue, they did indicate that the double-taxation treaty with the EFTA-bloc nation would be renegotiated with respect to the EFTA-India TEPA agreed on earlier

Typically, Indian firms working in Switzerland gain the benefit of a reduced tax slab of 5 per cent on dividends and other incomes.

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Switzerland’s latest decision to revoke the Most Favoured Nation (MFN) status for India will have no affect on trade and investment relations between the two countries, media reports said.

Speaking with The Hindu, some Indian officials said that this decision to suspend the MFN treatment for India under the double-taxation avoidance agreement (DTAA) will not impact the free trade deal recently inked between the European Free Trade Association (EFTA) nations or Swiss investments in India.

This freeze on the MSN clause will come into effect from January 1, 2025. While the officials refused to share details on the issue, they did indicate that the double-taxation treaty with the EFTA-bloc nation would be renegotiated with respect to the EFTA-India Trade and Economic Partnership Agreement (TEPA) agreed on earlier this year.

Issuing an official statement last week, the Swiss government announced that the MFN clause under the DTAA with India was being suspended. This decision followed the Supreme Court ruling that the agreement doesn’t get automatically triggered until it gets notified by the government under the Income Tax Act of 1961.

Typically, Indian firms working in Switzerland gain the benefit of a reduced tax slab of 5 per cent on dividends and other incomes, however, they remain liable to pay 10 per cent tax from the coming year.

The TEPA is a unique free trade agreement inked with the four-nation EFTA bloc which includes a binding commitment of $100 billion investment and generating one million direct jobs in India by firms from those four nations over the next 15 years.

Commenting on hopes for the TEPA pact, a Swiss embassy official in India said that the MFN clause suspension would have no direct impact on the EFTA-India TEPA. “In particular, this week’s decision does not negatively affect investment from Switzerland to India. The question of the interpretation by Switzerland and India of the most-favoured-nation clause concerns the residual tax rate applicable to dividends based on the double taxation agreement paid by a company of one contracting state to a resident of the other contracting state. However, the change in this residual rate has no impact on the validity of the double taxation agreement as such, or on any other treaties under international law concluded between Switzerland (independently or under the EFTA framework) and India.”