Double taxation agreement between Switzerland and India: Suspension of the most-favoured-nation clause

In general, dividend distributions are subject to Swiss withholding tax of 35%. If requirements are met, such Swiss withholding taxes may (partially) be reclaimed or a reduction at source via notification procedure may be applied based on the respective tax treaty.

According to the current double tax treaty between Switzerland and India, simplified a base/residual/ nonrefundable tax rate of 10% applies to dividend payments by a Swiss company to its Indian parent company. Due to the agreed most-favoured-nation/MFN clause, the Swiss federal tax authorities applied a base tax rate of 5% since 2018. Due to different interpretation of the MFN clause by India (decision of the Indian Supreme Court) respectively a lack of reciprocity, Switzerland will again apply the base tax rate of 10% from January 1, 2025, as per the current tax treaty. However, dividend distributions from 2018 through end of 2024 will continue to benefit from a base rate of 5%.

Thus, concluding on an interim dividend to be paid by a Swiss subsidiary to its Indian parent company with a due date until December 31, 2024, may generate a 5% cash tax saving.

Grant Thornton Switzerland is happy to advise you.