The suspension of most-favoured-nation (MFN) status for India by Switzerland introduces tax challenges for Indian firms operating in Switzerland, particularly in sectors such as financial services, pharmaceuticals and IT.
Investors need to keep an eye on sectors like pharmaceuticals, IT, financial services, and engineering equipment.
Switzerland’s recent decision to suspend India’s Most Favored Nation (MFN) status may affect Indian investors in IT, pharma and financial services. The move disrupts the preferential trade framework that India previously enjoyed under the World Trade Organization (WTO) MFN principle. Here’s everything investors need to know.
What is the problem?
The Swiss government has suspended the most-favoured-nation (MFN) clause in the Double Taxation Avoidance Agreement (DTAA) between India and Switzerland, which will affect Swiss investment in India and operations in the European country. Indian companies doing so will face higher taxes.
Companies will now have to pay 10 percent tax on dividends and other income, up from 5 percent earlier, effective January 1, 2025.
According to a December 11 statement by the Swiss Finance Ministry, the move follows a ruling by the Supreme Court of India last year that the MFN clause is not automatically triggered when a country joins the OECD if the Indian government Have previously signed a tax treaty with that country. He joined the organization.
What is MFN status?
MFN status is a cornerstone of global trade under WTO rules. It mandates that countries treat all trading partners equally, ensuring that the same trade tariffs, quotas and regulations apply to the most favored partner. The suspension of this status by Switzerland means that Indian goods and services may now face higher tariffs, additional trade barriers and reduced access to the Swiss market.
How will this affect investors?
GTRI founder Ajay Srivastava said the suspension of the MFN clause is a setback for Indian firms operating in Switzerland.
According to think tank Global Trade Research Initiative (GTRI), the suspension introduces tax challenges for Indian firms operating in Switzerland, particularly in sectors such as financial services, pharmaceuticals and IT.
According to a stock market analyst, “Investors need to keep an eye on sectors like pharmaceuticals, IT, financial services, and engineering equipment.”
What does the Indian government say?
India has said that its double tax treaty with Switzerland may need to be renegotiated in view of a trade deal with European Free Trade Association (EFTA) member states.
“My understanding is that with Switzerland, because of EFTA, we have a double taxation agreement. That’s going to be renegotiated. That’s one aspect of it,” MEA spokesman Randhir Jaiswal told his weekly Answering a question on this matter in a media briefing, he said.
India-Switzerland Trade Partnership
In the fiscal year 2023-24, bilateral trade between India and Switzerland was about $23.76 billion, of which the bulk of imports was from Switzerland at about $21.24 billion.
Switzerland imports gold and silver, mainly used in the jewelery sector, pharmaceutical intermediates and machinery. Major exports include pharmaceutical products, gems and jewellery, organic chemicals and machinery.
India received about $10.72 billion in foreign direct investment from Switzerland between April 2000 and September 2024.
In March this year, India signed a free trade agreement with EFTA, a bloc of four European countries, whose members are Iceland, Liechtenstein, Norway and Switzerland. Switzerland is India’s largest trading partner, followed by Norway in the bloc.
The India-Switzerland Double Taxation Agreement was signed on November 2, 1994, and was subsequently amended in 2000 and 2010.