Switzerland has suspended the most favoured nation (MFN) clause in a bilateral tax treaty with India following Indian Supreme Court’s decision last year adding an extra procedural layer and making the applicability of the provision non-automatic, in a tax dispute involving Nestle SA.

An order from the Swiss government showed that cross-border dividend payments would be subject to 10% tax at source from 1 January, as per the bilateral tax treaty between the two nations, rather than a 5% rate that the Swiss competent authority had said would apply in August 2021.

However, for the tax years between 2018 and 2024, the 5% tax would apply, and the increase applies from next year, the Swiss government order said.

This means tax rate on dividends received by Indian investors from Swiss entities would go up from January. As far as the tax rate on the dividends issued by Indian entities to their Swiss investors is concerned, there won’t be any change as the Indian position has been that the 10% rate specified in the tax treaty was the applicable rate, experts explained.

That is, the proposed change in tax rate could hurt India’s investments in the European nation, while the Supreme Court ruling last year may have delivered similar impact on inbound investments from Switzerland, although such changes would only be visible over a period of time, experts said.

The Swiss authority’s view behind its August 2021 interpretation of the bilateral treaty provisions, which is not shared by the Indian tax authorities, was that on account of the MFN status, India signing bilateral tax treaties with Lithuania and Columbia prescribing a lower residual tax rates and these two nations joining the OECD(Organisation for Economic Co-operation and Development) group meant that the same lower rate was also applicable with Switzerland.

However, the Indian Supreme Court had ruled last year that the MFN clause does not automatically kick in and that it requires an explicit notification by the Indian government. Also, the Supreme Court was of the view that OECD membership status of third countries have to be benchmarked against the date of signing of the treaties with them.

Under the MFN clause in the India-Switzerland treaty, If India signs a deal with a third OECD country with a lower rate, the same would apply with Switzerland too.

On the basis of the Indian Supreme Court ruling, the Swiss competent authority acknowledges that its interpretation of the bilateral tax treaty is not shared by the Indian side, the Swiss government order said.

“In the absence of reciprocity, it, therefore, waives its unilateral application with effect from 1 January 2025,” the order said, adding that income accruing on or after 1 January 2025 may be taxed in the source state at the rate specified in the bilateral treaty itself.

Essentially, Switzerland is of the view that it is not receiving the same treatment that India grants to other countries with more favourable tax treaties.

“The main reason behind this is of reciprocity, which ensures that taxpayers in both countries are treated equally and fairly.”

The development means the MFN clause will only take effect once both countries issue notifications, in line with the Indian Supreme Court’s decision, said Sameer Gupta, national tax leader, EYIndia. “The Court had previously clarified that the MFN clause’s implementation depends on such notification. 

India’s capital expenditure on infrastructure projects such as roads, railways, ports, airports, and telecommunications has been rising steadily over the years, and the government stands ready to make adequate funds available in next year’s budget as well to maintain the sector’s growth momentum.

India aims to become a developed nation by 2047, the country’s Independence centenary, and infrastructure development will continue apace.

India’s infrastructure spending has seen a significant boost under prime minister Narendra Modi’s government. To be sure, infrastructure investments have been loaded in the recent past.
For FY25, the Centre allocated ₹11.11 trillion for its own infrastructure capex and ₹3.9 trillion as grants to states for asset creation, according to data from the finance ministry. The capex support has been growing from just about ₹5 trillion in FY22, rising to ₹7.5 trillion in FY23 and then to ₹10 trillion in FY24.

“The focus of the Modi government is on building infrastructure, as it also has a positive impact on the economy. Accordingly, sufficient work has been done on building infrastructure – road, air and rail connectivity has improved considerably over the last 10 years.” 

Infrastructure growth holds the key to India becoming a developed nation by 2047 with a GDP size of over $30 trillion.

For the flagship Bharatmala projects in the highway sector, stating that 26,425 km of highways out of 34,800 km has already been awarded and work on 18,714 km has already been completed.
Under the Bharatmala scheme, the government is building new roads, bridges, and tunnels to improve connectivity across the length and breadth of the country. The minister also highlighted the fast pace of growth reported in the railways and aviation sectors, with rapid expansion of electrification of railway network and airports in the country.

Rice inventories in India surged to a record high at the start of December, reaching more than five times the government’s target and potentially boosting overseas shipments from the world’s biggest exporter of the staple food.

Rice reserves, including unmilled paddy, in state granaries totalled 44.1 million tonnes (mt) on 1 December against a government target of 7.6mt, data compiled by the Food Corporation of India showed.

Wheat stocks on 1 December stood at 22.3mt against a targeted 13.8mt.

Higher rice stocks would allow India to boost shipments without jeopardizing domestic supplies.

Last year’s patchy monsoon rains led New Delhi to restrict exports of all grades.

The expectation of a bumper crop prompted India to remove export curbs on all rice grades, except for broken rice.

In the middle of overflowing grain bins, Indian farmers have gathered a record rice crop of 120mt from this year’s summer season, which accounts for nearly 85% of total rice output.

As the new crop rolls in, stocks at FCI are set to increase further in the months to come, raising storage concerns in the world’s second-biggest rice producer.

FCIis expected to buy 48.5mt of the new summer-sown rice in the marketing year that began on 1 October, up from 46.3mt bought from farmers in 2023-24.

This year’s copious monsoon rains prompted farmers to expand planting areas.

Unlike rice, India does not allow wheat exports.

Indian wheat prices have jumped to a record high due to strong demand, limited supplies, and a delayed release of stocks from its government warehouses to augment supplies.

External Affairs Minister S Jaishankar Friday said India and UAE have common interest in preserving and promoting the stability, security and prosperity of both the region. He also said enhancing defence and security cooperation between the two nations will contribute to this goal.