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The Government of Switzerland withdrew the Most Favored Nation (MFN) status from India. After this decision of the Swiss government, now Indian companies operating there will have to pay 10% more tax from January 1, 2025. Switzerland had granted MNF nation status to India under the Double Tax Avoidance Agreement (DTAA).
On Friday, Switzerland said that it had to take this step due to the decision of the Indian Supreme Court. In fact, last year, in a case related to Nestle, the Supreme Court of India had ruled that DTAA cannot be implemented unless it is notified under the Income Tax Act.
This decision meant that companies like Nestle would have to pay more tax on their dividends. Earlier, Delhi High Court had ordered that companies and individuals working for or in foreign entities should not have to pay double tax. The Supreme Court overturned this decision.
Let us tell you that Nestle is a Swiss company. Its headquarters is in Vevey city of Switzerland.
DTAA is there to avoid double tax
According to Clear Tax, two countries enter into Double Tax Avoidance Agreement (DTAA) between themselves to protect their citizens and companies from double tax. Under this, companies or individuals do not have to pay tax in two different countries for their services or products.
What is MFN? World Trade Organization (WTO) is an organization of UNO (United Nations). 164 countries are its members. All the countries under this give each other Most Favored Nation (MFN) status. After being given this status, all countries can easily do business with each other without any discrimination.
Why and how is MFN status taken away? Generally, under Article 21B of WTO, any country can withdraw this status from another country due to security related disputes. According to the report, several main conditions have to be fulfilled to withdraw it. But in reality there is no formal procedure for its removal.
It is also not clear whether a country is obliged to inform WTO if it is snatching the MFN status from another country or not.
India had snatched MFN status from Pakistan in 2019 After the 2019 terrorist attack in Pulwama, Jammu and Kashmir, India also snatched the MFN status from Pakistan. Under which the customs duty was increased on many things imported from Pakistan. ——————————————
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