- Recently, Switzerland withdrew the Most Favored Nation (MFN) tag for India, which could lead to higher taxes for Indian businesses operating in the country.
- The move comes after a ruling by the Supreme Court of India, which stated that the benefits provided under the MFN clause could not be extended to Indian companies without notifying or complying with Section 50 of Indian tax law.
- The Trade and Economic Partnership Agreement (TEPA) was signed between four countries and India: Norway, Switzerland, Iceland, and Liechtenstein.
- Removing the MFN tag is unlikely to result in any major downturn in relations or trade between the two countries.
Recently, the European nation of Switzerland has withdrawn the Most Favored Nation (MFN) tag for India, which could lead to higher taxes for Indian businesses operating in the country. This change will take effect from January 1, 2025, under which Indian companies will be charged up to 10% withholding tax on dividends, compared to the earlier rate of 5%.
The MFN status granted to Indian businesses was based on Switzerland’s treaties with other countries. However, this decision was not a unilateral move by Switzerland. The change comes after a ruling by the Supreme Court of India, which stated that the benefits provided under the MFN clause could not be extended to Indian companies without notifying or complying with Section 50 of Indian tax law. Following this ruling, Switzerland decided to withdraw the MFN status for India.
This move is considered a resisting force against the recent increase in Indian businesses operating in Switzerland. Recently, a large number of Indian businesses have decided to expand to Europe, with Switzerland emerging as a preferred destination due to the benefits previously available to Indian companies.
This development may have a larger impact, as India has been actively trying to increase its presence in Europe. It has often been said that India has not yet reached its full potential in trade with Europe. While the European economy heavily depends on China, India has been working to carve out its space in the region. However, this recent setback could hinder India’s efforts to strengthen its presence in Europe and counter the influence of other countries
However, it is not just the intervention of the Supreme Court that is noteworthy. It is also important to note that the Delhi High Court initially ruled in favour of India, stating that India should benefit from Switzerland’s treaties with other countries. This was the judgment in the Nestle case delivered by the Delhi High Court. However, this decision was later overruled by the Indian Supreme Court, which stated that India could not benefit from the treaty agreement with Switzerland unless and until India issued a notification under its tax laws. This development coincides with India’s efforts to sign a Trade and Economic Partnership Agreement (TEPA) with the European Free Trade Association (EFTA).
The Trade and Economic Partnership Agreement (TEPA) was signed between four countries and India: Norway, Switzerland, Iceland, and Liechtenstein. These four countries had agreed to invest $100 billion in India over the next 15 years. However, with the Most Favored Nation (MFN) tag now removed, whether this will create problems for India’s agreement with these countries arises.
The Indian government has stated that the Supreme Court ruling would not have any effect on the EFTA agreement. Amid India’s growing economy, and increasing investment demand from Europe, it is reasonable to believe that India’s trade ties with Europe, including Switzerland, will continue to strengthen. Removing the MFN tag is unlikely to result in any major downturn in relations or trade between the two countries.
Satish Chogule is pursuing a Masters in Political Science at the University of Kolhapur, Maharashtra. He has contributed to several online platforms on international affairs and global developments. Views expressed are the author’s own.
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