# MFN Clause in India's DTAAs After the Nestle Ruling, Our View (2026)

> Source: https://krystal7.com/insights/mfn-clause-india-tax-treaties-nestle-ruling
> Publisher: Krystal7 Consultants (Krystal7 Innovations Private Limited), Gurugram, India
> Author: Nihal Srivastava
> Published: 14 Jan 2026; updated 24 Oct 2026
> Summary: The Supreme Court ruled on 19 Oct 2023 that an MFN clause needs an Indian notification, so Dutch, French and Swiss parents pay 10 percent on dividends.

*Written by Nihal Srivastava, Krystal7 Consultants. Last updated 23 October 2026.*

## AI Overview Summary

- An MFN clause in an Indian tax treaty gives no lower rate until India notifies it. The Supreme Court held this in AO v Nestle SA on 19 Oct 2023.
- The third country counts only if it was an OECD member when it signed its treaty with India. Slovenia, Lithuania and Colombia joined the OECD later, so they do not trigger the clause.
- Indian subsidiaries should withhold 10 percent on dividends to Dutch, French and Swiss parents under the treaty text, with a TRC and Form 41 on file for the tax year.
- Switzerland stopped applying the MFN clause to dividends from 1 Jan 2025, so Swiss tax on dividends paid to Indian residents is again capped at 10 percent.
- The India France protocol signed on 18 Feb 2026 deletes the MFN clause and moves dividends to 5 and 15 percent, but it is not yet in force.

**An MFN clause in an Indian tax treaty does not lower Indian tax on its own. The Supreme Court settled this in Assessing Officer v Nestle SA (2023 INSC 928) on 19 Oct 2023. The benefit needs a notification under section 90(1) of the Income Tax Act, 1961. That power now sits in section 159(1) of the Income Tax Act, 2025. The third country must also have been an OECD member when it signed with India. Dividends to Dutch, French and Swiss parents stay at 10 percent.**

This case note sets out the question, the facts, the order and the Court's reasoning, then what has happened since. It ends with our view and the steps an Indian subsidiary should take now.

## Does an MFN clause in an Indian tax treaty apply automatically?

No. A most favoured nation (MFN) clause promises a treaty partner the lower rate or narrower scope that India later gives another OECD country. After the Nestle judgment, India gives that benefit only when the Central Government notifies it under the Income Tax Act. The later treaty also counts only if the third country was an OECD member when it signed with India.

Three of India's treaties carry the clause that mattered in the case:

* the Netherlands, in Article IV(2) of the protocol to the 1988 convention.
* France, in paragraph 7 of the protocol signed with the convention on 29 Sep 1992.
* Switzerland, in the protocol paragraph that Article 11 of the amending protocol of 30 Aug 2010 replaced. The consolidated text on incometaxindia.gov.in and the Swiss notice of 11 Dec 2024 number it paragraph 5.

Taxpayers used these clauses to claim 5 percent on dividends instead of the 10 percent in the treaty text. They pointed to India's later treaties with Slovenia, Lithuania and Colombia, which carry a 5 percent rate for qualifying holdings. The Supreme Court rejected that route on both grounds. The [India Netherlands DTAA guide](/insights/india-netherlands-dtaa-for-companies) covers the rest of that treaty.

## What question did the Supreme Court decide?

The Court framed two questions in paragraph 1 of the judgment. First, does the MFN clause apply where the third country was not an OECD member when it signed its treaty with India? Second, does the clause work by itself, or does it need a notification under section 90 of the Income Tax Act, 1961?

The Delhi High Court had answered both in the taxpayers' favour. It read the word "is" in "a third State which is a member of the OECD" as referring to the date of the claim. It also held that a protocol forms part of the treaty, so it needs no separate notification (paragraphs 2 and 5 of the judgment).

## What were the facts and the order in AO v Nestle SA?

The Supreme Court heard a batch of revenue appeals against Delhi High Court rulings. The table sets out the record.

| Item | Detail |
|---|---|
| Case | Assessing Officer Circle (International Taxation) 2(2)(2), New Delhi v M/s Nestle SA |
| Forum | Supreme Court of India, civil appellate jurisdiction |
| Citation | 2023 INSC 928; Civil Appeal No. 1420 of 2023 with connected appeals |
| Date of judgment | 19 Oct 2023 |
| Judgment by | Justice S. Ravindra Bhat, as named in the official PDF |
| Treaties in issue | India Netherlands, India France, India Switzerland |
| Taxpayers | Nestle SA (Switzerland); Concentrix Services Netherlands BV and Optum Global Solutions International BV (Netherlands); Steria (India France treaty) |
| Decision below | Delhi High Court ruled for the taxpayers |
| Result | Revenue's appeals succeeded and the High Court rulings were reversed |
| Review | Review Petition (C) No. 77 of 2024 and connected petitions dismissed on 6 Aug 2024 |

The matters reached the Court on three fact patterns (paragraphs 2, 3 and 6):

1. Steria wanted the narrower definition of fees for technical services in the India UK treaty read into the India France treaty. The Authority for Advance Rulings said a section 90 notification was needed first. The High Court reversed it.
2. Concentrix and Optum were Dutch parents that held almost all the shares of their Indian subsidiaries. They applied under section 197 for certificates at 5 percent on dividends. The tax officer issued them at 10 percent. The High Court allowed their writ petitions.
3. Nestle SA relied on the Swiss treaty and its protocols. The High Court followed its rulings in Steria and Concentrix.

The Swiss Federal Department of Finance later described the result in its own words: the Supreme Court "reversed the lower court's decision". Nestle SA then sought a review. On 6 Aug 2024 Justices Sanjiv Khanna and Dipankar Datta dismissed the review petitions by circulation. They held that "no case for review of the order dated 19.10.2023 is made out" ([review order](https://api.sci.gov.in/supremecourt/2023/48138/48138_2023_2_1006_54483_Order_06-Aug-2024.pdf)). The review order is the last order we found on the Supreme Court's website. Before you rely on the judgment in a dispute, check the case status of Civil Appeal No. 1420 of 2023 on sci.gov.in for any later curative petition.

The third countries all joined the OECD after they signed with India. The Court tabulated the dates in paragraph 47.

| Third country | Treaty with India signed | Entered into force | Notified in India | Joined the OECD |
|---|---|---|---|---|
| Slovenia | 13 Jan 2003 | 17 Feb 2005 | 31 May 2005 | 21 Jul 2010 |
| Lithuania | 26 Jul 2011 | 10 Jul 2012 | 25 Jul 2012 | 5 Jul 2018 |
| Colombia | 13 May 2011 | 7 Jul 2014 | 23 Sep 2014 | 28 Apr 2020 |

## What legal framework did the Court apply?

The Court started from section 90(1) of the Income Tax Act, 1961. It lets the Central Government enter into a tax treaty and, by notification, make the provisions needed to implement it. Section 90(2) then applies the treaty or the Act, whichever is more beneficial to the taxpayer.

Under the Constitution, a treaty binds India in international law once ratified, but it changes domestic law only through legislation. Paragraph 38 links enforceability to a treaty being "enacted by law, or enabled through legislation". Paragraph 44(i) states that the terms of a ratified treaty "do not ipso facto acquire enforceability".

India's own practice on these three treaties was a series of notifications:

* Netherlands: S.O. 693(E) of 30 Aug 1999 substituted Articles 10, 11 and 12, with a 10 percent dividend cap from 1 Apr 1997.
* France: S.O. 650(E) of 10 Jul 2000 substituted Article 11(2), with a 10 percent dividend cap from 1 Apr 1997.
* Switzerland: GSR 357(E) of 21 Apr 1995, GSR 74(E) of 7 Feb 2001 and S.O. 2903(E) of 27 Dec 2011.

The CBDT had also issued [Circular No. 3/2022](https://www.incometaxindia.gov.in/documents/20117/6507196/Circular-3-2022.pdf/94054efc-27a2-3625-5efe-a71ceb598372?t=1762868630635) on 3 Feb 2022 on the MFN clause in the protocols to these treaties. Paragraph 5 sets four conditions, and all of them must be met:

1. The second treaty, with the third state, comes after the signature or entry into force of the first state's treaty, as the clause specifies.
2. The third state was an OECD member when it signed its treaty with India.
3. India limits its taxing rights in the second treaty on rate or scope for the relevant income.
4. India issues a separate notification under section 90(1) that imports the benefit into the first state's treaty.

Paragraph 6 of the circular leaves alone any court order already passed in a taxpayer's favour.

From 1 Apr 2026 the same rules sit in the Income Tax Act, 2025. The map below covers the provisions a dividend paying subsidiary touches.

| Topic | Income Tax Act, 1961 | Income Tax Act, 2025 |
|---|---|---|
| Treaty given effect by notification | Section 90(1) | Section 159(1) |
| Treaty or Act, whichever is more beneficial | Section 90(2) | Section 159(4) |
| TRC needed for treaty relief | Section 90(4) | Section 159(8)(a) |
| Other prescribed information (Form 10F, now Form 41) | Section 90(5) | Section 159(8)(b) |
| Tax on dividends of a foreign company (20 percent) | Section 115A | Section 207(1), Table Sl. No. 1 |
| Withholding on dividends to a foreign company (20 percent) | Section 195 | Section 393(2), Table S. No. 17(f) |
| Lower deduction certificate | Section 197 (Form 13) | Section 395(1) (Form 128) |
| Payer treated as in default | Section 201 | Section 398(1) |
| Penalty for failure to deduct | Section 271C | Section 448 |
| Reasonable cause defence | Section 273B | Section 470 |

Section 536 of the 2025 Act keeps actions taken under the 1961 Act alive where they are consistent with the new Act. On our reading, the treaty notifications of 1995 to 2011 continue to apply.

## How did the Court reason?

The Court reached its answer through four steps.

1. **Notification is a condition.** Paragraph 46 holds that a treaty or protocol confers no enforceable right until a notification issues under section 90(1). Paragraphs 69 to 72 contrast the Netherlands, France and Switzerland, where parliament approves treaties, with India. In India, "Absent this step, treaties and protocols are per se unenforceable."
2. **India's practice is consistent.** Paragraph 54 notes that India gave the Netherlands its lower rates through the 1999 notification, with effect from 1 Apr 1997. The earlier OECD treaties did not extend them automatically. Paragraphs 64 to 66 show the same pattern with Canada, where an emphatic protocol was still followed by a notification.
3. **"Is" means at the time of signing.** Paragraph 51 holds that "the expression 'is' has a present signification and it derives meaning from the context". A third country must be an OECD member when it enters its treaty with India. Slovenia, Lithuania and Colombia were not (paragraph 49).
4. **Strong wording does not change the rule.** The 2010 Swiss protocol says the lower rate "shall also apply" from the date the third country treaty enters into force. Paragraph 63 holds that Switzerland still needed a separate notification, as France and the Netherlands did.

The Court also set out the Dutch, Swiss and French decrees that apply the clause on their side (paragraphs 67 and 68). It then turned to how each state gives domestic effect to a treaty (paragraphs 69 to 72). Section F of Part IV covers the Vienna Convention on the Law of Treaties.

## Why did Switzerland suspend the MFN clause from 1 Jan 2025?

Switzerland stopped applying the MFN clause to dividends because India did not apply it in return. The Swiss Federal Department of Finance announced this in Berne on 11 Dec 2024. From 1 Jan 2025, Swiss tax on dividends paid to Indian residents is capped at the treaty rate of 10 percent.

Switzerland had applied the clause on its side under a statement of 13 Aug 2021. The [2021 statement](https://www.estv.admin.ch/dam/de/sd-web/xE6rI895GQgw/int-laender-indien-fachmitteilung-mfn-de.pdf) cut the Swiss rate to 5 percent for holdings of at least 10 percent from 5 Jul 2018. That is the date Lithuania joined the OECD. It cut the rate to 5 percent for all dividends from 28 Apr 2020, when Colombia joined. The same statement set the credit Switzerland gives its own residents for Indian tax at 5 percent, for dividends due from 1 Jan 2021 onwards.

The [suspension notice](https://www.estv.admin.ch/dam/en/sd-web/bifa29jbp2im/int-laender-indien-suspension-mfn-en.pdf) makes these points:

* India read the clause differently, and the Supreme Court confirmed India's reading in the Nestle judgment of 19 Oct 2023.
* Without reciprocity, Switzerland will not apply the clause on its own.
* The 2021 position still governs dividends due for 2018 to 2024.
* Refund and credit claims remain available under the conditions in treaty law and domestic law.
* The notice addresses dividends only. It does not change interest, royalties or fees for technical services.
* The step does not affect the free trade agreement or Swiss investment in India.

The Swiss Federal Tax Administration's [India page](https://www.estv.admin.ch/en/india-en) showed no later notice on 23 Oct 2026. Swiss groups should read this with the [India EFTA TEPA note](/insights/india-efta-tepa-swiss-norwegian-companies) and the [Switzerland to India setup guide](/insights/register-a-company-in-india-from-switzerland).

## Where do the Netherlands and France stand?

The Netherlands still applies the clause on its side, and France has signed a protocol that deletes it. India applies 10 percent to both under the treaty text.

**Netherlands.** A Dutch decree of 28 Feb 2012 sets a 5 percent rate on dividends that Dutch companies pay to Indian companies. The Indian company must hold at least 10 percent. It applies from 21 Jul 2010, the date Slovenia joined the OECD. Portfolio dividends stay at 10 percent. The Dutch government's [legislation portal](https://wetten.overheid.nl/BWBR0031345) showed the decree as in force on 23 Oct 2026. India, for its part, applies 10 percent under Article 10(2) as substituted in 1999.

**France.** The French government's impact study for the bill approving the new protocol records the history ([Senate document](https://www.senat.fr/leg/etudes-impact/pjl25-951-ei/pjl25-951-ei.pdf), dated 10 Sep 2026). France treated the MFN conditions as met after India's treaties with the US, Germany, Sweden, Portugal and Slovenia. It lowered the rates on dividends, royalties and technical fees to 10 percent. India accepted the rate cuts. It refused to narrow the scope of the articles automatically. In India's view the clause worked only through an express notification by the tax administration, and India declined to issue one.

India and France signed an amending protocol in New Delhi on 18 Feb 2026. The [PIB release](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2231751&reg=3&lang=1) of 23 Feb 2026 lists the changes:

* The MFN clause in the protocol is deleted.
* Dividends move from a single 10 percent rate to 5 percent for holders of at least 10 percent of the capital, and 15 percent in other cases.
* The state where the company is resident gets full taxing rights on gains from sale of its shares.
* The definition of fees for technical services is aligned with the India US treaty.
* A service permanent establishment (PE) clause is added.
* The exchange of information article is updated, and a new article on assistance in collection of taxes is added.
* The relevant provisions of the Multilateral Instrument (MLI) are written into the treaty.

The protocol enters into force on the day after the later notification of completed procedures. The French study records that India had not yet notified France. It also says Article 15(4) defers the dividend and capital gains changes by two years. The [India France DTAA guide](/insights/india-france-dtaa-for-companies) tracks the treaty as a whole.

## What dividend withholding rates apply today?

On 23 Oct 2026, an Indian company withholds 10 percent on dividends to a qualifying Dutch, French or Swiss parent. The MFN rate of 5 percent is not available in India. Without a TRC and Form 41, the domestic rate of 20 percent plus surcharge and cess applies.

| Parent's country | India's rate on dividends to that parent | Instrument in India | Other state's rate on dividends to an Indian resident | Instrument abroad |
|---|---|---|---|---|
| Netherlands | 10% | Article 10(2), S.O. 693(E) of 30 Aug 1999 | 5% for holdings of 10% or more; 10% otherwise | Dutch decree of 28 Feb 2012 |
| France | 10% | Article 11(2), S.O. 650(E) of 10 Jul 2000 | 10% | French MFN position, per the 2026 impact study |
| Switzerland | 10% | Article 10(2), GSR 74(E) of 7 Feb 2001 | 10% from 1 Jan 2025 (5% applied for 2018 to 2024) | Swiss notice of 11 Dec 2024 |
| Any country, no TRC or Form 41 | 20% plus surcharge and cess | Sections 207(1) and 393(2), Income Tax Act, 2025 | Not applicable | Not applicable |

The treaty rate needs the paperwork in section 159(8). The parent must give a TRC from its own tax authority under clause (a), and Form 41 under clause (b). Rule 75 of the Income Tax Rules, 2026 asks for Form 41 once for each tax year. Our [Form 10F and TRC guide](/insights/form-10f-and-tax-residency-certificate-india) explains both.

Many payers apply the treaty rate without adding surcharge and cess. That position rests on tribunal rulings, not on the text of the Act. The [TDS guide for payments to non residents](/insights/tds-on-payments-to-non-residents) covers section 393 in detail.

## What has happened since 14 Jan 2026?

This note carries a publish date of 14 Jan 2026. The events below came after it.

* **15 Jan 2026.** The Supreme Court decided the Tiger Global case on the India Mauritius treaty. It deals with capital gains, not MFN. Our [Tiger Global case note](/insights/tiger-global-supreme-court-ruling-treaty-benefits) covers it.
* **18 Feb 2026.** India and France signed the amending protocol in New Delhi. PIB announced it on 23 Feb 2026.
* **1 Apr 2026.** The Income Tax Act, 2025 came into force. Section 159 now carries the treaty power that section 90 held.
* **10 Sep 2026.** The French impact study recorded that India had not yet notified completion of its procedures for the protocol.
* **23 Oct 2026.** The India France page on incometaxindia.gov.in listed no 2026 notification. The Dutch decree still showed as in force. The Swiss Federal Tax Administration's India page showed no reinstatement.

## What changed in 2026

| Item | Old position | New position | Date | Instrument |
|---|---|---|---|---|
| Treaty notification power | Section 90(1), Income Tax Act, 1961 | Section 159(1), Income Tax Act, 2025 | 1 Apr 2026 | Act 30 of 2025 |
| Treaty claim statement | Form 10F | Form 41 under section 159(8)(b) | 1 Apr 2026 | Income Tax Rules, 2026, rule 75 |
| Withholding on dividends to a foreign company | Section 195 | Section 393(2), Table S. No. 17(f), 20% | 1 Apr 2026 | Act 30 of 2025 |
| India France MFN clause | Paragraph 7 of the 1992 protocol | Deleted, once the protocol is in force | Signed 18 Feb 2026 | Amending protocol; PIB release of 23 Feb 2026 |
| India France dividend rate | 10% | 5% for holdings of 10% or more, 15% otherwise, after the deferral | Not yet in force | Amending protocol, Article 15(4) |

## Our view

This section is Nihal's view, not a statement of the law. We take four positions.

1. **The notification holding is right.** Section 90(1), now section 159(1), gives the treaty power to the Central Government "by notification". India notified every earlier MFN benefit, for the Netherlands in 1999 and France in 2000. A taxpayer cannot ask a tax officer to apply a rate that the government never notified. We agree with the Court on this half.
2. **The "is" holding is defensible but costly.** The clauses date from 1988 to 1992 and look forward to India's future treaties. Reading "is" at the date of signing excludes every country that joins the OECD after it signs with India. In practice that leaves the clauses with little to bite on. The reading fits India's practice, but it gave Switzerland a clear reason to withdraw its side.
3. **Treat these MFN clauses as dead unless India notifies them.** We plan every dividend to a Dutch, French or Swiss parent at 10 percent. We do not ask a client to rely on a foreign decree, a lower deduction certificate or an old High Court ruling for 5 percent. The France protocol shows the workable route: a negotiated rate in the treaty itself.
4. **Penalty and interest differ for past years.** Some subsidiaries withheld 5 percent while a Delhi High Court ruling stood. They had a binding decision to rely on. In our view that supports a reasonable cause defence to penalty under section 273B of the 1961 Act. Interest is compensatory, so we expect it to be payable on any shortfall. A subsidiary that applied 5 percent after 19 Oct 2023 has no such defence.

## What should an Indian subsidiary with a Dutch, French or Swiss parent do now?

Withhold at 10 percent, document the treaty claim each tax year and clean up any earlier dividend paid at 5 percent. The points below set the order of work.

* **Current dividends.** Apply 10 percent under the treaty. Do not reduce it for MFN. Keep the TRC, Form 41 and the parent's beneficial ownership confirmation on file before the payment date.
* **Past dividends.** List every dividend paid to the parent in years still open to a tax officer. Compare the rate applied with 10 percent and work out the shortfall with interest.
* **Lower deduction certificates.** A certificate under section 395(1) on Form 128 cannot grant the MFN rate. Read any old section 197 certificate at 5 percent against the Nestle ruling.
* **Parent's tax credit.** Tell a Swiss parent that its credit position changed with the Swiss notice. Ask its adviser to confirm the credit for dividends due before and after 1 Jan 2025.
* **France.** Watch for India's notification of the protocol. The 5 percent rate applies only after entry into force and the deferral in Article 15(4).
* **Remittance papers.** Dividends are not on the rule 220 list of exempt payments, so Form 145 and, where required, Form 146 go with each payment. Our [Form 145 and 146 guide](/insights/form-15ca-and-15cb-requirements-guide-2026) sets out the steps.

The wider process for paying dividends abroad is in our [guide to dividends to a foreign parent](/insights/dividend-from-indian-subsidiary-to-foreign-parent).

## Worked example

**Scenario 1.** An Indian subsidiary declares a dividend of INR 10,00,00,000 in Aug 2026. Its Swiss parent holds 100 percent of the shares and has no other income in India. The table compares the three rates.

| Basis | Rate | Tax withheld (INR) | Net to parent (INR) |
|---|---|---|---|
| MFN rate claimed (not available) | 5% | 50,00,000 | 9,50,00,000 |
| Treaty rate with TRC and Form 41 | 10% | 1,00,00,000 | 9,00,00,000 |
| Domestic rate without TRC or Form 41: 20% tax, 2% surcharge, 4% cess | 21.216% | 2,12,16,000 | 7,87,84,000 |

The domestic line works as follows. Tax at 20 percent is INR 2,00,00,000. Surcharge at 2 percent of the tax is INR 4,00,000. The 2 percent band applies because the income is above INR 1,00,00,000 and not above INR 10,00,00,000. Cess at 4 percent of INR 2,04,00,000 is INR 8,16,000. Missing paperwork costs this parent INR 1,12,16,000 more than the treaty rate.

**Scenario 2.** A subsidiary pays a dividend of INR 4,00,00,000 to its Dutch parent on 15 May 2026 and withholds 5 percent. The tax officer applies the treaty rate of 10 percent.

| Item | Working | Amount (INR) |
|---|---|---|
| Tax due at 10% | 4,00,00,000 x 10% | 40,00,000 |
| Tax withheld at 5% | 4,00,00,000 x 5% | 20,00,000 |
| Shortfall | 40,00,000 minus 20,00,000 | 20,00,000 |
| Interest at 1% a month if the shortfall is paid on 15 Nov 2026 (6 months) | 20,00,000 x 1% x 6 | 1,20,000 |
| Possible penalty under section 448, subject to section 470 | Equal to the tax not deducted | 20,00,000 |

The interest rate comes from section 398 of the 2025 Act. A payer in 2026 has no reasonable cause argument, because the Supreme Court settled the point on 19 Oct 2023.

## Common mistakes

1. **Claiming 5 percent through the MFN clause.** No Indian notification grants it. Withhold 10 percent under the treaty text.
2. **Relying on the Dutch decree for Indian withholding.** The decree governs Dutch tax on dividends leaving the Netherlands. Apply India's notified rate on dividends leaving India.
3. **Reading "is a member of the OECD" at the date of the claim.** The test is membership on the date the third country signed with India. Check that date before citing any later treaty.
4. **Treating a 5 percent lower deduction certificate as a shield for later years.** A certificate covers the period and the person it names. Apply for a fresh certificate on Form 128 only where the law supports the rate.
5. **Paying without a TRC or Form 41 for the tax year.** The domestic rate then applies. Collect both before the board declares the dividend.
6. **Assuming the France protocol applies now.** It is not in force, and its dividend change is deferred. Keep 10 percent until India notifies it and the deferral ends.
7. **Ignoring past years.** A shortfall from a dividend paid at 5 percent can still be raised within the time limits. Quantify it and decide with the parent who bears it.

## Checklist

1. Identify every foreign shareholder and its country of residence.
2. Confirm the treaty rate for each parent from the notified treaty text on incometaxindia.gov.in.
3. Collect the TRC and Form 41 for the tax year before the dividend date.
4. Withhold at 10 percent for Dutch, French and Swiss parents unless a notified change applies.
5. File Form 145 and, where required, Form 146 before remitting.
6. Report the payment in the quarterly statement on Form 144.
7. Review dividends paid at 5 percent in earlier years and compute any shortfall with interest.
8. Record the reasonable cause facts for any pre 19 Oct 2023 payment.
9. Track the India France protocol and the Swiss and Dutch positions each quarter.

To review your dividend withholding or a past shortfall, email business@krystal7.com with the board resolution and the parent's TRC.

## Key terms

- **Most Favoured Nation (MFN) clause**: A clause, usually in a DTAA protocol, promising a treaty partner any lower withholding rate India later gives another country. After the Supreme Court ruling in Nestle SA (19 Oct 2023), India applies such a rate only once the Government notifies it under section 90 of the Income Tax Act, 1961, now section 159 of the Income Tax Act, 2025. (https://krystal7.com/glossary#most-favoured-nation-clause)
- **Double Taxation Avoidance Agreement (DTAA)**: A treaty between India and another country that divides taxing rights over cross border income and caps Indian withholding tax. Section 159 of the Income Tax Act, 2025 (old section 90) gives treaties effect. Where India has no comprehensive DTAA with a country, domestic withholding rates under the Income Tax Act, 2025 apply and no treaty documents are needed. (https://krystal7.com/glossary#double-taxation-avoidance-agreement)
- **Protocol to a tax treaty**: A document signed with or after a tax treaty that adds to or amends its terms. In India a protocol changes the tax payable only once the Central Government notifies it, which the Supreme Court confirmed in AO v Nestle SA in 2023. (https://krystal7.com/glossary#protocol-to-a-tax-treaty)
- **Section 159 notification**: The notification by which the Central Government gives effect to a tax treaty or protocol under section 159(1) of the Income Tax Act, 2025, which replaced section 90(1) of the 1961 Act. Without it, a treaty term creates no enforceable right in India. (https://krystal7.com/glossary#section-159-notification)
- **Tax Residency Certificate (TRC)**: A TRC is the certificate a payee's home tax authority issues to confirm its tax residence there for a period. Section 159(8)(a) of the Income Tax Act, 2025 makes it a condition for treaty relief in India, alongside Form 41. An Indian resident applies for one in Form 42 and receives it in Form 43. (https://krystal7.com/glossary#tax-residency-certificate)
- **Form 41 (old Form 10F)**: Form 41 is the online statement a non resident files on the income tax portal to claim treaty benefits under section 159(8) of the Income Tax Act, 2025. It replaced Form 10F from 1 Apr 2026. Rule 75 of the Income Tax Rules, 2026 requires it once per tax year, and payers ask for it before the first payment. (https://krystal7.com/glossary#form-41-old-form-10f)
- **Organisation for Economic Cooperation and Development (OECD)**: The Paris based body of member countries whose membership triggers the MFN clauses in India's treaties with the Netherlands, France and Switzerland. After the Nestle ruling, the relevant test is membership on the date the third country signed its treaty with India. (https://krystal7.com/glossary#organisation-for-economic-cooperation-and-development)

## Frequently Asked Questions

### What did the Supreme Court decide in AO v Nestle SA?

On 19 Oct 2023 the Supreme Court held that an MFN clause in an Indian tax treaty does not lower Indian tax by itself. The benefit needs a notification under section 90(1) of the Income Tax Act, 1961. The Court also held that the third country must be an OECD member when it signs with India. The revenue's appeals succeeded and the Delhi High Court rulings were reversed.

### What is the dividend withholding rate for a Dutch parent of an Indian company?

India applies 10 percent under Article 10(2) of the India Netherlands treaty, as substituted by S.O. 693(E) of 30 Aug 1999. The parent needs a TRC and Form 41 under section 159(8) of the Income Tax Act, 2025. The 5 percent MFN rate is not available in India after the Nestle ruling.

### Can a Swiss parent still claim 5 percent on Indian dividends?

No. India never notified a 5 percent rate under the India Switzerland treaty, and the Supreme Court held that a notification is needed. India applies 10 percent under Article 10(2) as substituted by GSR 74(E) of 7 Feb 2001. Switzerland also stopped applying its own 5 percent MFN rate from 1 Jan 2025.

### Why did Switzerland suspend the MFN clause with India?

The Swiss Federal Department of Finance said on 11 Dec 2024 that India did not apply the clause in return. The Nestle ruling had confirmed India's reading. From 1 Jan 2025, Swiss tax on dividends paid to Indian residents is capped at 10 percent. The 2018 to 2024 position under the 2021 Swiss statement still applies to those years.

### Does the Netherlands still give Indian companies 5 percent on Dutch dividends?

Yes, on the Dutch side. A Dutch decree of 28 Feb 2012 applies 5 percent to dividends paid to Indian companies holding at least 10 percent. The Dutch legislation portal showed it in force on 23 Oct 2026. India still applies 10 percent on dividends going the other way.

### What does the new India France protocol change for dividends?

The protocol signed on 18 Feb 2026 deletes the MFN clause. It sets dividends at 5 percent for holders of at least 10 percent of the capital and 15 percent in other cases. It is not yet in force, and Article 15(4) defers the dividend change by two years after entry into force.

### Which section replaced section 90(1) under the Income Tax Act, 2025?

Section 159(1) of the Income Tax Act, 2025 replaced section 90(1) from 1 Apr 2026. It lets the Central Government give effect to a tax treaty by notification. Section 159(4) applies the more beneficial of the treaty and the Act. Section 159(8) requires a TRC and Form 41 for any treaty claim.

### Does the Nestle ruling affect interest, royalties and fees for technical services?

Yes. The ruling covers any benefit claimed through an MFN clause, including a lower rate or a narrower definition. The Steria matter in the same batch concerned the definition of fees for technical services under the India France treaty. Each needs an Indian notification before it applies.

### Is a subsidiary liable for penalty if it withheld 5 percent before the ruling?

The payer can be treated as in default for the shortfall, with interest. Penalty for failure to deduct under section 271C of the 1961 Act was subject to the reasonable cause defence in section 273B. In our view, reliance on a binding Delhi High Court ruling supports that defence for payments before 19 Oct 2023.

### Can a lower deduction certificate give the MFN rate?

No. A certificate under section 395(1) of the Income Tax Act, 2025, applied for on Form 128, reflects the rate the law allows. After the Nestle ruling, the law allows the notified treaty rate, which is 10 percent for the Netherlands, France and Switzerland.

## Sources

- Supreme Court of India, Assessing Officer Circle (International Taxation) 2(2)(2), New Delhi v M/s Nestle SA, 2023 INSC 928, judgment of 19 Oct 2023, https://api.sci.gov.in/supremecourt/2022/6394/6394_2022_8_1502_47832_Judgement_19-Oct-2023.pdf
- Supreme Court of India, order in Review Petition (C) No. 77 of 2024 and connected petitions, 6 Aug 2024, https://api.sci.gov.in/supremecourt/2023/48138/48138_2023_2_1006_54483_Order_06-Aug-2024.pdf
- Swiss Federal Department of Finance, Switzerland suspends its unilateral application of the most favoured nation clause in the protocol to the double taxation agreement between Switzerland and India for dividends, 11 Dec 2024, https://www.estv.admin.ch/dam/en/sd-web/bifa29jbp2im/int-laender-indien-suspension-mfn-en.pdf
- Swiss Federal Tax Administration, India page, checked 23 Oct 2026, https://www.estv.admin.ch/en/india-en
- Swiss Federal Tax Administration, statement on the MFN clause under the Switzerland India agreement (German), 2021, https://www.estv.admin.ch/dam/de/sd-web/xE6rI895GQgw/int-laender-indien-fachmitteilung-mfn-de.pdf
- Government of the Netherlands, Belastingverdragen, India (decree of 28 Feb 2012), checked 23 Oct 2026, https://wetten.overheid.nl/BWBR0031345
- French Senate, impact study on the bill approving the amending protocol to the France India convention of 29 Sep 1992, 10 Sep 2026, https://www.senat.fr/leg/etudes-impact/pjl25-951-ei/pjl25-951-ei.pdf
- Press Information Bureau, India and France sign Amending Protocol to update Double Taxation Avoidance Convention, 23 Feb 2026, https://www.pib.gov.in/PressReleasePage.aspx?PRID=2231751&reg=3&lang=1
- Income Tax Department, Netherlands comprehensive agreement, https://www.incometaxindia.gov.in/w/netherlands-comprehensive-agreements-1
- Income Tax Department, France comprehensive agreement, https://www.incometaxindia.gov.in/w/france-comprehensive-agreements-1
- Income Tax Department, Swiss Confederation comprehensive agreement, https://www.incometaxindia.gov.in/w/swiss-confederation-comprehensive-agreements-1
- CBDT, Circular No. 3/2022 on the MFN clause in the protocol to India's DTAAs with certain countries, F. No. S03/1/2021-FT&TR-1, 3 Feb 2022, listing page https://www.incometaxindia.gov.in/w/circular-no.-3/2022-clarification-regarding-the-most-favoured-nation-mfn-clause-in-the-protocol-to-india-s-dtaas-with-certain-countries and PDF https://www.incometaxindia.gov.in/documents/20117/6507196/Circular-3-2022.pdf/94054efc-27a2-3625-5efe-a71ceb598372?t=1762868630635
- Income Tax Department, section 159 of the Income Tax Act, 2025, https://www.incometaxindia.gov.in/w/section-159-89
- Income Tax Department, section 207 of the Income Tax Act, 2025, https://www.incometaxindia.gov.in/w/section-207-76
- Income Tax Department, TDS rates, https://www.incometaxindia.gov.in/w/tds-rates

---
Krystal7 Consultants, business@krystal7.com, +91 94657 30130. HTML version: https://krystal7.com/insights/mfn-clause-india-tax-treaties-nestle-ruling