Nestle India has clarified that the suspension of the most favoured nation (MFN) clause granted to India by Switzerland will not affect its operations. The company described the development as a “policy issue” between the two governments and not specific to Nestle.
On December 11, the Swiss government suspended the MFN status granted to India under the Double Tax Avoidance Agreement (DTAA).
According to a 2010 agreement between India and Switzerland, if New Delhi provides a lower tax rate in its agreements with other OECD countries, Switzerland is entitled to the same rate under the MFN clause.
In 2011, India signed agreements with Lithuania and Colombia, granting a 5% withholding tax rate. Both countries became OECD members in 2018 and 2020, respectively, making Switzerland eligible for the same reduced rate. In August 2021, Swiss authorities allowed Indian tax residents to claim refunds based on this reduced rate.
However, Switzerland reserved the right to reverse the clause if India failed to ensure reciprocity. Last year, the Supreme Court ruled that the MFN clause under the DTAA cannot be enforced unless explicitly notified under Section 90 of the Income Tax Act.
Following this, Swiss authorities withdrew the unilateral reduction in withholding tax rates, taxing dividends paid to Indian holding companies at 10%.
Nestle India stated it has been deducting withholding tax at 10% all along.
“The matter is not a Nestle-specific issue but is a policy matter between India and Switzerland. We would like to inform you that Nestle India was/is deducting a 10 per cent withholding tax, and this has no impact on Nestle India,” a Nestle India spokesperson said on Thursday.
Nestle India, which owns popular brands like Maggi, Nescafe, and KitKat, has been operating in India for 112 years. Over the past five years, it has invested approximately ₹6,500 crore in the Indian market. In FY24, the company reported revenue of ₹24,393.9 crore in the country.