Switzerland's suspension of the most-favoured-nation clause will have no impact on the economic partnership agreement with the European Free Trade Association, Commerce Secretary Sunil Barthwal said on Monday.
The MFN status granted to India was a 30-year old double-taxation agreement between the two countries and will impact the entities operating in the nation as they will have to pay higher taxes from January.
The suspension of the clause follows a 2023 Supreme Court ruling involving Nestlé SA. The court determined that Switzerland's reduction of the tax rate on dividends for Indian entities does not require reciprocal action from India unless explicitly specified in a government notification.
"The Department of Revenue handles matters related to double-taxation avoidance agreement," Barthwal said in a press briefing, adding that it would not have an impact on the agreement with EFTA countries of Switzerland, Norway, Iceland and Liechtenstein.
Switzerland's decision, announced on Dec. 11, can have significant implications for investments in India as it may result in higher withholding taxes on dividends. Beginning Jan. 1, dividends paid between Switzerland and Indian residents will be subject to the original 10% withholding tax rate. However, there was no clarity if the suspension of the MFN clause will have an impact on the EFTA.
India had signed a free trade agreement in March with the four European nation bloc, with Switzerland as the largest trading partner of India, followed by Norway.
According to estimates from the Global Trade Research Initiative, Switzerland accounts for 91% of bilateral merchandise trade, emerging as India's largest EFTA trading partner.
According to the agreement document, the EFTA countries will aim to increase foreign direct investment into India by $50 billion within 10 years from when the deal comes into force. An additional $50 billion is expected to flow in the succeeding five years. The investments do not cover foreign portfolio investments.
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