‘Nestlé’ Effect..! Switzerland Revokes India’s ‘Most Favored Nation’ Status!

Mahaenews Online Desk: The Swiss government has dealt a major blow to Indian companies. Switzerland has revoked India’s Most Favored Nation (MFN) status. Last year, in a case related to Nestlé, India’s Supreme Court clearly stated that the Double Taxation Avoidance Agreement (DTAA) cannot be applied without prior notification under the Income Tax Act. It was announced on Friday from Switzerland that due to this Supreme Court ruling, Indian companies will now have to pay higher taxes starting from January 1, 2025.

In its statement, the Swiss government said that it has suspended the MFN status in the context of the Double Taxation Avoidance Agreement (DTAA) between Switzerland and India. Switzerland’s decision to withdraw the MFN status was based on the Indian Supreme Court’s ruling in the Nestlé case from 2023.

Supreme Court Overturned High Court’s Decision
In 2021, the Delhi High Court had upheld the imposition of tax based on the MFN clause in the Double Taxation Avoidance Agreement. However, the Indian Supreme Court, in its ruling on October 19, 2023, overturned the lower court’s decision.

What is MFN?
The World Trade Organization (WTO) is an organization of 164 member countries. Under the WTO, all member countries grant each other the Most Favored Nation (MFN) status, meaning they trade without discrimination, providing equal benefits to all members.

How is MFN Status Revoked?
Generally, under WTO Article 21B, a country can revoke MFN status from another country due to security-related disputes. Several key conditions must be met for this status to be revoked. However, there is no formal procedure for revoking the MFN status. It is unclear whether a country must notify the WTO if it revokes MFN status from another country.

India had revoked Pakistan’s MFN status in 2019 following the Pulwama terrorist attack in Jammu and Kashmir. Under this revocation, customs duties on many items imported from Pakistan were increased.