Switzerland revokes India’s ‘Most Favoured Nation’ status over Nestle judgment

In a move that could lead to higher taxes on Indian entities operating in Switzerland, the European country has removed India from the ‘Most Favoured Nation’ status.

This marks the end of a 30-year agreement between the two countries, effective from January 1, 2025.

Announced on Wednesday, this move will also affect investments in India, as dividends will mean higher tax withholding. Dividends from Swiss entities to Indians and vice versa, will be taxed at the rate imposed on other ‘non-favoured’ nations, i.e. 10%.

Experts have reportedly stated that the agreement could be renewed if Switzerland is up for it.

The agreement was first signed in 1994 between the two countries, who agreed to not impose double taxation on the income from each other. The multi-level taxation was done with, resulting in lower taxes for all.

The amendment to that contract in 2010 added India to the status of ‘Most Favoured Nation’ with Switzerland, if India was to lower tax on dividends with Switzerland entities.

According to reports, the taxes on dividends for Indian entities were reduced to 5% from 10% by Switzerland, however, India didn’t. In a 2023 verdict, the Supreme Court said that Nestle (a Swiss entity) reducing tax on dividends need not be reciprocated by Indian entities until the Indian government issues a notification for the same.