Indian consumers may soon have to pay more for Maggi noodles as Switzerland is set to suspend the Most-Favored-Nation (MFN) clause under its 1994 Double Taxation Avoidance Agreement (DTAA) with India from January 1, 2025. The move is expected to increase tax liabilities for Swiss companies operating in India, including Nestle, the maker of Maggi.
The decision follows a 2023 ruling by India’s Supreme Court, which clarified that the MFN clause under the DTAA does not apply automatically. Instead, India must issue specific notifications for the clause to take effect.
Switzerland expressed concerns over unequal tax treatment, citing more favorable dividend tax terms India offers to countries like Slovenia and Lithuania. Claiming a lack of reciprocity, Swiss authorities decided to suspend the MFN clause, calling the current tax framework unfair.
The change will raise the dividend tax rate for Swiss companies to 10%, compared to the reduced 5% they previously sought under the treaty. Nestle’s appeal for the lower tax rate was rejected by the Supreme Court, leading to increased tax liabilities for the company. This financial strain could push Nestle to adjust its pricing strategies in India, potentially making Maggi and other Nestle products more expensive for Indian consumers.