Switzerland has decided to withdraw the Most Favoured Nation (MFN) status granted to India, a move that will have significant tax implications for Indian companies operating in the European nation. This decision comes after an adverse ruling from the Indian Supreme Court regarding a tax dispute involving Nestlé, the Swiss food giant headquartered in Vevey. From January 1, 2025, Indian businesses in Switzerland will face higher withholding tax rates, particularly on dividend income, signalling a shift in the tax landscape for bilateral trade and investments.

Switzerland’s federal department of finance (DFF) announced that it would suspend the application of the MFN clause in the tax treaty between Switzerland and India, specifically within the context of the Double Taxation Avoidance Agreement (DTAA). The decision follows the Supreme Court’s October 2023 ruling, which effectively reversed a previous interpretation that allowed Indian entities to benefit from lower tax rates based on subsequent tax treaties between Switzerland and other nations.