Why the Switzerland–India treaty rate jumped from 5% to 10% — the MFN suspension, explained

For a few years, Indian investors in Swiss companies enjoyed a quiet bonus: a 5% treaty rate on dividends, half the headline 10% the Switzerland–India tax treaty actually specifies. It came not from the treaty text but from a "most-favoured-nation" clause — a promise that India would extend to Switzerland any better dividend rate it later gave a comparable country. India did give 5% to a couple of other countries, so the argument ran that Switzerland should get 5% too. Then, from 1 January 2025, the bonus vanished and the rate snapped back to 10%. The cause was not a Swiss budget or an Indian rate change. It was an Indian Supreme Court ruling — in a case involving, fittingly, Nestlé — and Switzerland's pointed response to it.

This is the most consequential tax story in the Swiss market for an Indian investor, because it directly determines how much of your Swiss dividend you keep. This guide explains what the MFN clause was, what the Supreme Court actually held, why Switzerland reacted by unilaterally withdrawing the benefit, what it costs you in rupees, and — importantly — what you may still be able to reclaim for the years the 5% rate did apply.

What a "most-favoured-nation" clause is, in plain terms

Tax treaties sometimes contain a most-favoured-nation (MFN) clause. The idea is straightforward: if Country A signs a treaty with Country B that includes an MFN clause on dividends, and Country A later agrees to a lower dividend rate with Country C, then Country B is entitled to that same lower rate automatically. It is a "no worse than your best friend" guarantee — Switzerland did not want India to give a better deal to some other country while leaving Switzerland on a higher rate.

The Switzerland–India treaty contained such a clause. The treaty's own dividend rate is 10%. But India subsequently signed treaties with countries such as Lithuania and Colombia that set the dividend rate at 5%. On the MFN logic, Switzerland argued, Indian residents (and Swiss residents on the reverse leg) should get 5% on dividends too, because India had given 5% to a comparable third country. Switzerland accepted this reading and, from a 2018 understanding, applied 5% to qualifying dividends — retroactively in some respects. For several years, that was the operative position.

What the Supreme Court actually ruled — the Nestlé case

The whole structure rested on a question of interpretation, and in October 2023 the Supreme Court of India answered that question in a way that demolished it. The case is commonly called the Nestlé case (formally the Assessing Officer v. Nestlé SA matter, decided alongside related appeals). The Court held two things that mattered enormously:

1. An MFN clause is not self-executing in India. For the lower third-country rate to actually apply, the Indian government must issue a formal notification under Section 90 of the Income Tax Act bringing it into effect. Without that notification, the MFN benefit does not flow automatically — taxpayers cannot simply invoke the clause and apply the lower rate themselves. India had not issued such a notification for the Swiss MFN benefit.

2. The third country must have been an OECD member when its treaty with India was signed. The MFN clause referenced rates given to OECD member states. Lithuania and Colombia, the Court noted, joined the OECD after they signed their treaties with India. So even on the merits, the rates India gave those countries did not trigger the MFN clause in the way the 5% argument required.

The combined effect: the Supreme Court ruled that the 5% rate had no valid basis in Indian law. The MFN-based 5% was, in the Court's view, never properly available — it required a notification India never issued and rested on third-country treaties that did not qualify.

Why Switzerland retaliated — and the timing

Here is the part that catches investors off guard: the Supreme Court ruling was about how India would treat the MFN clause, but the most visible consequence landed on Switzerland's side of the treaty. Switzerland had been unilaterally granting the 5% benefit based on its own reading of the MFN clause. After the Indian Supreme Court rejected that reading, Switzerland concluded there was no longer reciprocity — India was not honouring the 5% interpretation, so Switzerland saw no reason to keep granting it one-sidedly.

In December 2024, Switzerland announced that it was withdrawing its unilateral application of the MFN clause, effective 1 January 2025. From that date, dividends from Swiss companies to Indian residents revert to the treaty's own rate of 10%, and the reverse leg (Indian dividends to Swiss residents) likewise loses the 5% benefit. It was, in effect, a tit-for-tat: if India's highest court says the MFN clause does not deliver 5%, Switzerland will stop pretending it does.

The sequence, then, is:

• 2018–2024: Switzerland applies 5% under the MFN reading.
• October 2023: Indian Supreme Court rules the MFN benefit was never validly available (Nestlé).
• December 2024: Switzerland announces withdrawal of the unilateral MFN benefit.
• 1 January 2025 onward: the operative dividend rate is 10%.

What it costs you, in rupees

The practical effect is that your treaty entitlement on Swiss dividends doubled — from 5% to 10%. Within the reclaim machinery, that means you now recover less of the 35% Swiss withholding, because Switzerland is entitled to keep more.

	Under 5% (2018–2024)	Under 10% (2025 onward)
Swiss WHT at source	35%	35%
Treaty rate Switzerland keeps	5%	10%
Reclaimable via ESTV form	30 pts	25 pts
FTC creditable in India	5%	10%

On a CHF 1,000 dividend, the difference is CHF 50 — Switzerland now keeps CHF 100 instead of CHF 50. That is the direct, recurring cost of the change on every Swiss dividend you receive.

But — and this is important — the net cost to you may be smaller than it looks, because of the foreign tax credit. India taxes your gross Swiss dividend at your slab rate and lets you credit the treaty tax Switzerland levied. Under the old 5% rate you credited 5% and paid the rest to India; under the 10% rate you credit 10% and pay correspondingly less to India. If your Indian slab rate is above 10% (which it is for most investors who hold foreign shares), the extra 5 points you now pay to Switzerland is largely offset by a smaller Indian tax bill, because you are crediting more foreign tax. The total tax on the dividend — Switzerland plus India combined — is broadly governed by your Indian slab rate either way; the change mostly shifts which government gets the money, not the total you pay.

Where the 5%-to-10% jump genuinely hurts you in absolute terms:

• If your Indian slab rate is below 10% (rare for foreign-share holders, but possible for low-income or specific situations), you can only credit up to your Indian liability and the excess Swiss tax becomes a real cost.
• If you fail to reclaim at all — then the higher treaty rate compounds the disaster, because more of the un-reclaimed 35% is now "rightfully" Swiss and even less is creditable.
• In cash-flow terms — you part with more at source and wait longer to net it out, even if the eventual total is similar.

So the headline "your tax went up" is true at the source, but the Form 67 credit (Form 67 is being renumbered Form 44 from TY2026-27) absorbs most of it for a typical higher-rate Indian investor. The change is real, but it is not the catastrophe the "5% to 10%" framing suggests for most people.

A worked comparison — old rate versus new rate

To see how little the change costs a typical higher-rate Indian investor once the foreign tax credit is applied, run the same CHF 1,000 dividend through both regimes, assuming a 30% Indian slab rate.

	Under 5% (2018–2024)	Under 10% (2025 onward)
Gross dividend	CHF 1,000	CHF 1,000
Swiss tax retained (treaty rate)	CHF 50	CHF 100
Indian tax at 30% on gross	CHF 300	CHF 300
Less: foreign tax credit (treaty rate)	– CHF 50	– CHF 100
Net Indian tax payable	CHF 250	CHF 200
Total tax (Switzerland + India)	CHF 300	CHF 300

The punchline jumps out of the bottom row: the total tax is identical — CHF 300 — in both cases. At a 30% slab rate, the 5%-to-10% change moved CHF 50 from India's exchequer to Switzerland's and left your total bill unchanged. India simply gives you a larger credit (CHF 100 instead of CHF 50) to offset the larger Swiss take. This is the foreign-tax-credit mechanism doing exactly what it is designed to do: prevent double taxation, with your total roughly governed by whichever rate is higher (here, your Indian slab).

This is why the alarmist "your Swiss dividend tax doubled" framing is misleading for most investors. It doubled at source, but the total you pay is broadly unchanged as long as your Indian slab rate exceeds the Swiss treaty rate — which it does for essentially everyone holding foreign shares. The change bites only at the margins described above (sub-10% Indian rates, cash-flow timing, and the disaster of failing to reclaim).

A note for the reverse leg and Swiss-resident readers

The MFN suspension is symmetrical. It removed the 5% benefit on Swiss dividends to Indian residents (the leg this guide focuses on) and equally on Indian dividends paid to Swiss residents — both revert to the treaty 10% from 2025. If you are an NRI tax-resident in Switzerland, or you hold Indian dividend-paying stocks while resident in Switzerland, the same 5%-to-10% reversal applies to your Indian dividend income, and the same "check the older years" opportunity exists in reverse. The mechanics differ (you would be reclaiming or crediting under Indian rather than Swiss procedure), but the underlying story — the Supreme Court ruling collapsed the 5% reading for both directions — is the same.

Can you still reclaim the 5% rate for the old years?

Yes — and this is the actionable opportunity buried in the saga. The 10% rate applies to dividends from 1 January 2025. For dividends in the earlier window — broadly 2018 to the end of 2024 for qualifying participations — the 5% rate was the operative position, and Indian residents who received Swiss dividends in those years may be entitled to reclaim Swiss withholding down to 5%, not 10%, for those specific years.

Given the three-year reclaim deadline, the relevant point as of early 2026 is timing: dividends from 2023 and 2024 are still well inside the window, and dividends from 2022 may still be reclaimable depending on the exact dates. If you received Swiss dividends in 2022, 2023 or 2024 and have not yet reclaimed — or reclaimed only down to 10% — check whether the 5% rate applies to those years and whether you can still file (or top up) before the window closes. The amounts can be worth chasing, and the deadline is unforgiving. This is the single most time-sensitive thing in this guide.

What this means for how you hold Swiss exposure

The MFN suspension does not change the fundamental shape of Swiss investing for an Indian resident, but it sharpens a few conclusions:

• The reclaim matters more than ever, not less. A higher treaty rate (10%) does not reduce the importance of reclaiming the 35% down to it — you are still recovering 25 percentage points on every dividend, and that is still the difference between a sane and an insane effective tax.
• Capital gains remain the bright spot. None of this touches the 0% Swiss capital-gains treatment. For a long-term, low-dividend-turnover holder of Nestlé, Roche or Novartis, the MFN change is a small dividend-side cost against an unchanged, generous gains regime.
• It is a reminder that treaty rates are not permanent. The 5% was an interpretation, not a guarantee, and it evaporated. Build your Swiss thesis on the franchise quality and the clean gains treatment — not on a dividend-tax edge that can move with a court ruling.

It is also worth noting this is a theme, not a Swiss quirk. The same Supreme Court reasoning has unsettled MFN-based 5% claims for other treaties — the Netherlands and France MFN positions have been contested on identical logic, and France went as far as signing a protocol to delete the MFN clause entirely. If you hold European dividend payers across several countries, assume the MFN-based 5% rates are unreliable and plan around the treaties' own stated rates.

What to actually do

• For dividends from 2025 onward, work with the 10% treaty rate when reclaiming via the ESTV form and when claiming your Form 67 credit in India.
• For dividends in 2022–2024, check the 5% entitlement and reclaim the larger amount before the three-year window closes — this is time-sensitive and the most valuable action in this guide.
• Don't over-react to "5% to 10%." For a typical higher-rate Indian investor, the foreign tax credit absorbs most of the increase; the total tax is broadly set by your Indian slab rate either way. The change mainly shifts money from India's exchequer to Switzerland's, not from your pocket.
• Keep the bigger picture in view via the Switzerland hub and the markets comparison — Swiss quality and 0% capital-gains treatment are the reasons to be here; the dividend rate is a managed cost, not a dealbreaker.

The 5%-to-10% reversal is a clean illustration of how cross-border tax really works: a ruling in a Delhi courtroom about Nestlé's dividends quietly changed the maths for every Indian who owns a Swiss stock. Understanding why it happened is what lets you respond calmly — reclaim the old years while you can, work with 10% going forward, and keep your eye on the franchises rather than the treaty footnotes.

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This is general information, not tax or legal advice. The MFN suspension, the Supreme Court ruling, and the resulting treaty rates are recent and contested areas — the 5% versus 10% position by year, and your ability to reclaim earlier years, should be confirmed against the current ESTV guidance and a qualified advisor before you file anything. Figures reflect rules as understood in early 2026.