The price hike is linked to a major shift in international trade relations: Switzerland has announced the suspension of the most-favoured-nation (MFN) clause under the 1994 Double Taxation Avoidance Agreement (DTAA) with India. Which will be effective from 1 January 2025.
Hence, the decision may force Swiss companies, including Nestlé, to bear higher costs in the form of a tax of up to 10% on profits from Indian sources, a rate now higher than the previous one.
Notably, Nestlé India announced that sales of Maggi will reach six billion servings in the financial year 2023-24, cementing India as the brand’s largest market globally. Adding further, Nestle India also noted that it sold 4.2 billion fingers of the popular chocolate KitKat, making India its second largest market.
India-Switzerland trade tension
The controversy started after the Supreme Court of India’s 2023 judgment, which clarified that the MFN (Most Favored Nation) clause does not apply automatically and must be clearly communicated to the Indian government. Switzerland claimed that it was not receiving the same benefits as other countries with more favorable tax treaties. In response to this lack of reciprocity, Switzerland chose to suspend the MFN clause.
How India-Switzerland Tax Disputes May Affect Consumers
The additional tax burden on companies is likely to be passed on to consumers, leading to higher prices of products like Maggi and other Nestlé products in India. It highlights the ongoing challenges in trade between India and Switzerland and highlights the significant impact of international tax policies on consumer goods.