The dispute stems from India's tax treaties with Lithuania and Colombia, which offered lower tax rates on certain incomes. After these nations joined the OECD, Switzerland interpreted the MFN clause to mean India-Switzerland tax rates should align with these lower rates. However, the Supreme Court ruled that the MFN clause is not automatically applicable without a specific notification under Section 90 of the Income Tax Act, prioritizing prior treaty provisions.

In October 2023, the Supreme Court reversed the Delhi High Court's earlier interpretation, impacting Nestle and favoring the residual tax rates stipulated in the original treaty. In response, Switzerland announced that, effective January 1, 2025, dividends paid to Indian entities will attract a 10% tax rate instead of the current 5%.

Experts view Switzerland's move as either retaliatory or reciprocal. Sandeep Jhunjhunwala of Nangia Andersen highlighted the complexities of international tax treaties and the need for alignment on clause interpretation. Amit Maheshwari of AKM Global noted that this change could deter Swiss investments in India due to increased withholding tax rates on dividends. Kumarmanglam Vijay of JSA Advocates emphasized its impact on Indian companies with Swiss subsidiaries, as outbound direct investment structures would face higher tax liabilities.

This development underscores the importance of clear, predictable international tax frameworks and signals potential challenges for businesses navigating evolving treaty interpretations.

The dispute stems from India's tax treaties with Lithuania and Colombia, which offered lower tax rates on certain incomes. After these nations joined the OECD, Switzerland interpreted the MFN clause to mean India-Switzerland tax rates should align with these lower rates. However, the Supreme Court ruled that the MFN clause is not automatically applicable without a specific notification under Section 90 of the Income Tax Act, prioritizing prior treaty provisions.

In October 2023, the Supreme Court reversed the Delhi High Court's earlier interpretation, impacting Nestle and favoring the residual tax rates stipulated in the original treaty. In response, Switzerland announced that, effective January 1, 2025, dividends paid to Indian entities will attract a 10% tax rate instead of the current 5%.

Experts view Switzerland's move as either retaliatory or reciprocal. Sandeep Jhunjhunwala of Nangia Andersen highlighted the complexities of international tax treaties and the need for alignment on clause interpretation. Amit Maheshwari of AKM Global noted that this change could deter Swiss investments in India due to increased withholding tax rates on dividends. Kumarmanglam Vijay of JSA Advocates emphasized its impact on Indian companies with Swiss subsidiaries, as outbound direct investment structures would face higher tax liabilities.

This development underscores the importance of clear, predictable international tax frameworks and signals potential challenges for businesses navigating evolving treaty interpretations.