Bern, 16 December 2024. Maggi, the widely cherished two-minute noodles, may soon cost more in India following Switzerland’s suspension of the Most-Favored-Nation (MFN) clause under its 1994 Double Taxation Avoidance Agreement (DTAA) with India. The decision, effective January 1, 2025, is set to increase operational costs for Swiss companies like Nestle, which produces the iconic brand.
The move stems from a 2023 Supreme Court ruling that deemed the MFN clause under the DTAA non-automatic, asserting that India must issue explicit notifications for its applicability. Switzerland opposed this interpretation, arguing that it undermines reciprocal trade benefits and places Swiss companies at a disadvantage compared to nations like Slovenia and Lithuania, which have more favorable tax agreements with India.
“Switzerland’s businesses, including Nestle, will now face a higher tax burden, creating an uneven playing field,” Swiss officials stated, pointing to discrepancies in dividend tax rates. Under the suspended MFN clause, Swiss firms benefited from a reduced 5 percent tax rate on dividends. Without it, the rate rises to 10 percent, significantly increasing their tax obligations.
Nestle, among the hardest hit, had sought a continuation of the reduced tax rate but saw its plea rejected by the Supreme Court. The impending hike in tax liabilities threatens to pressure the company’s profit margins. Analysts predict the company may have no choice but to revise its pricing strategies in India to offset the impact.
The Swiss decision, driven by concerns over fairness and reciprocity, highlights a growing strain in bilateral tax agreements. For Indian consumers, it may spell the end of an era of low-cost indulgence in Maggi and other Nestle products.