Switzerland has decided to suspend the Most-Favoured-Nation (MFN) status granted to India, which could result in higher taxes for Indian companies operating in the country. Starting January 1, 2025, Indian companies will face increased withholding tax rates on income such as dividends and royalties generated in Switzerland. The new tax rules will impose a 10% tax on dividends earned by Indian entities.

This move follows a ruling by the Indian Supreme Court in October 2023, which stated that the Double Tax Avoidance Agreement (DTAA) cannot be enforced unless officially notified under the Income-Tax Act. As a result, Swiss companies like Nestlé now face higher taxes on dividends. The Supreme Court's decision overturned a Delhi High Court ruling that had previously protected companies and individuals from double taxation while working for foreign entities.

The MFN clause in DTAA allows treaty nations to benefit from reduced tax rates on income such as dividends, royalties, and technical fees. Switzerland's statement explained that its interpretation of this provision was not reciprocated by India. Consequently, Switzerland will suspend the MFN status starting January 2025, citing the lack of reciprocity.