Mint Explainer: Why Switzerland withdrew MFN status in its tax treaty with India

Switzerland has suspended the Most-Favoured-Nation clause in its Double Taxation Avoidance Agreement with India, significantly altering the tax treatment of cross-border dividends. Switzerland has attributed this change to a 2023 Indian Supreme Court ruling in a case involving Nestle SA and others, which clarified that MFN clause benefits require explicit notification by the Indian government under the Income Tax Act, adding procedural hurdles to treaty implementation. In October 2023, the Supreme Court overturned the Delhi High Court’s decision, reinstating the revenue department’s position and ruling that MFN benefits require explicit notification under Indian law. “One such instance is the Supreme Court’s decision in the Azadi Bachao Andolan v. Union of India case," says Rahul Charkha, partner at Economic Laws Practice. “The Supreme Court’s decision of adopting a strict interpretation of the MFN clause in the tax treaties affects India’s conduct of international relations with the MFN jurisdictions.