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Context:
Switzerland has suspended the unilateral application of the most favoured nation (MFN) clause with India under the Double Tax Avoidance Agreement (DTAA). This suspension is based on the October 2023 ruling of the Supreme Court against the MFN’s validity.
Key Highlights:
- This treaty reduced withholding tax careened in India by Indian entities to 5% from previously 10%.
- According to the Federal Department of Finance, income generated on or after January 1, 2025, should be taxable in the source state at the rates prescribed in India-Switzerland Direct Tax Convention.
- The most favoured nation (MFN) clause is a principle found in international treaties, including tax agreements, that ensures equal treatment for all parties involved.
The DTAA between India and Switzerland was signed in 1994 and amended in 2010 to prevent double taxation of income.
What is Double Tax Avoidance Agreement (DTAA)?
It aims to avoid double taxation incidents involving an income through bilateral agreements between two countries.
- Provides tax relief either in co-jurisdictions or both.
- Based on the source of income, taxation incurs.
- Can set low-rate taxes on income derived from cross border.
- It provides a mechanism for the resolution of disputes arising out of the tax-related requirements.
Know more about: DTAA between India and Switzer
