Swiss tangle: Most favoured interpretations of treaties can prove unfavourable

The new Reserve Bank of India governor, Sanjay Malhotra, in one of his last addresses as revenue secretary, quite rightly suggested that tax officials consider economy’s interests before revenue’s. In October 2023, the Indian Supreme Court had decided in the Nestle matter that MFN treatment under India’s double tax avoidance agreements cannot automatically extend to a country without an executive notification under Section 90 of the Income Tax Act. While India may hope to benefit from MFN or similar provisions in its bilateral treaties, which could be contingent upon some conditions being fulfilled, bureaucratic protocols such as IT Act notification—in addition to hard fought conditions under these agreements— can create unnecessary complications and delay the process of claiming treaty benefits. Under the Indo-Swiss DTAA, if other OECD countries receive better tax treatment than Switzerland in relation to withholding tax, it would also become eligible to receive such benefits from India. Curiously, in the Nestle matter, the Indian government argued in the SC that since the other two countries were not part of the OECD at the time of their agreement with India, similar treatment couldn’t be provided to Switzerland, which has been in the OECD for long.