Switzerland has suspended ‘Most Favored Nation’ (MFN) status in its double taxation avoidance agreement with India. The move may impact Indian companies and Swiss investments in India.
What is preferential nation (MFN) status?
MFN status is a protocol that is part of the Double Taxation Avoidance Agreement (DTAA) between India and Switzerland. Under this provision, if India agreed to lower tax rates with any other country, Switzerland could also avail the same.
reason for decision
Switzerland took this step after a decision of the Supreme Court of India in 2023. The Court said that the MFN provision does not automatically apply to tax treaties entered into before a country joins the OECD (Organization for Economic Co-operation and Development). For this reason Switzerland decided to suspend the MFN status.
What will be the change?
Tax on dividends will increase: Earlier, there was a 5% tax on dividends earned in Switzerland. Now this tax will increase by 10% (from January 1, 2025). Impact on foreign investment: Swiss companies may hesitate to invest in India. Switzerland’s $100 billion investment commitment is also at risk.
Impact on Indian companies and common man
Impact on Indian companies: Tax liability of Indian companies operating in Switzerland will increase. Decrease in profits will affect the expansion of companies. Impact on common man: Due to increase in tax, investment of Swiss companies in India may reduce. This may affect employment and development projects. If Swiss investment declines, products and services may become more expensive locally.
Expert opinion
Experts believe that this step may weaken India-Switzerland economic relations.
Due to increase in dividend tax: Investors will get less returns. Threat of decline in total investment: India’s trade relations with Switzerland will be negatively impacted.
How to understand this?
The changes are simply depicted in a table below:
Point Earlier (MFN implemented) Now (MFN suspended) Tax on dividends 5% 10% Spending of Indian companies Less More Swiss investment Likely to increase Likely to decrease
advice for common man
Be careful when buying Swiss products: prices can increase. Keep an eye on job and investment options: Big changes may be coming. Pay attention to government policies: New schemes may come to compensate for Swiss investments.
This change is not just a matter of economic data, but it will affect every person who is dependent on products, services or jobs related to foreign companies.
