NEW DELHI: Retaliation towards a 2023 Supreme Court ruling associated to Nestle, Switzerland has withdrawn probably the most-favoured-nation clause to India below the double tax avoidance settlement, a transfer that can hit Indian firms invested within the European nation.
“For dividends due from and including Jan 1, 2025, the residual tax rate in the source State is limited to 10%,” the Swiss federal division of finance stated in a press release issued Wednesday. Earlier they’d to pay 5% tax.
India and Switzerland had initially signed the settlement in 1994 and the protocols had been amended in 2000 and 2010. Subsequently, India signed tax treaties with Colombia and Lithuania that offered tax charges on sure forms of revenue that had been decrease than the charges it offered to OECD member. nations. Three years in the past, Switzerland interpreted that Colombia and Lithuania becoming a member of the OECD meant a 5% price for dividends would apply below the DTAA to India, too, below the MFN clause.
More nations could comply with Switzerland, say consultants
Supreme Court final 12 months dominated that the MFN clause does not robotically set off when a rustic joins the OECD if the Indian authorities signed a tax treaty with that nation earlier than it joined the group.
“On the basis of the Indian SC ruling, the Swiss competent authority acknowledges that its interpretation of para 5 of the protocol to the IN-CH (India-Switzerland) DTA is not shared by the Indian side. In the absence of reciprocity, it therefore waives its unilateral application with effect from 1 January 2025,” the Swiss authorities stated on Wednesday.
Indian firms face the next legal responsibility due to the choice. “With the reversion to a 10% residual rate starting Jan 1, 2025, these firms face higher tax liabilities, reducing their competitiveness compared to businesses from countries still benefiting from MFN provisions,” stated Ajay Srivastava of GTRI.
Experts additionally stated that extra nations might comply with go well with. “Essentially, Switzerland is of the view that it is not receiving the same treatment that India grants to other countries with more favorable tax treaties. Further, the main reason behind this is of reciprocity, which ensures that taxpayers in both countries are treated equally and fairly. This seems to have been disregarded after the said ruling since Swiss authorities announced in Aug 2021 that based on the most-favoured-nation clause between Switzerland and India, the tax rate on dividends from qualifying shareholdings would be reduced from 10% to 5%, effective retroactively from July 5, 2018. However, the subsequent ruling in 2023 contradicted the same,” stated Amit Maheshwari, tax companion, AKM Global.
