India-Switzerland DTAA: Complete Guide to the Double Taxation Avoidance Agreement

Overview of the India-Switzerland DTAA

The Double Taxation Avoidance Agreement (DTAA) between India and the Swiss Confederation is one of India's most significant bilateral tax treaties, reflecting the deep economic ties between the two nations. Originally signed on 2 November 1994 and entering into force on 29 December 1994, the treaty has been amended through protocols signed on 16 February 2000 and 30 August 2010.

The agreement is designed to eliminate double taxation on income arising in one country and received by residents of the other. It covers a comprehensive range of income types including business profits, dividends, interest, royalties, fees for technical services, and capital gains. The treaty follows the OECD Model Tax Convention framework, which is consistent with Switzerland's status as an OECD member nation.

India and Switzerland share a robust economic relationship. Switzerland is a major source of foreign direct investment into India, with Swiss companies like Nestle, Novartis, ABB, and Holcim having significant Indian operations. The DTAA provides the legal framework that governs how cross-border income between these entities is taxed, ensuring neither excessive taxation nor opportunities for tax evasion.

A critical recent development is Switzerland's suspension of the Most Favoured Nation (MFN) clause effective 1 January 2025, which has significant implications for withholding tax rates on dividends. This guide covers all current provisions including this important change.

Treaty History and Current Status

The India-Switzerland DTAA has evolved through several stages over three decades:

• 2 November 1994: Original DTAA signed between India and Switzerland
• 29 December 1994: Treaty entered into force
• 16 February 2000: First protocol signed, amending certain provisions
• 30 August 2010: Second protocol signed, updating the MFN clause, exchange of information provisions, and other articles
• 7 June 2017: Both India and Switzerland signed the Multilateral Instrument (MLI)
• 25 June 2019: India deposited its Instrument of Ratification for the MLI (effective 1 October 2019)
• 22 September 2023: Switzerland deposited its MLI ratification
• 19 October 2023: Indian Supreme Court ruling in Nestle SA case on MFN clause interpretation
• 11 December 2024: Switzerland announced suspension of MFN clause application
• 1 January 2025: MFN clause suspension effective; dividend rate reverts to 10%

The treaty consists of 29 articles covering definitions, scope of taxation, relief mechanisms, and administrative cooperation. The 2010 protocol was particularly significant as it brought the exchange of information provisions in line with OECD standards, enabling Switzerland to share tax-related information with India upon request.

The MFN Clause Controversy

The Most Favoured Nation clause in the India-Switzerland DTAA protocol stated that if India entered into a DTAA with an OECD member country offering lower rates on dividends, interest, or royalties, those lower rates would automatically apply to the India-Switzerland treaty. In 2021, Switzerland interpreted that Colombia and Lithuania joining the OECD triggered the MFN clause, reducing the dividend rate from 10% to 5%.

However, India's Supreme Court, in the landmark Nestle SA judgment dated 19 October 2023, held that the MFN clause is not self-executing and requires a specific notification by the Indian government under Section 90 of the Income Tax Act. The Court also ruled that "third State which is a member of the OECD" refers to countries that were OECD members at the time the treaty was signed, not countries that joined later.

In response, Switzerland unilaterally suspended the MFN clause application from 1 January 2025, reverting the dividend withholding rate to the original treaty rate of 10%.

Key Treaty Articles

The India-Switzerland DTAA comprises 29 articles. Below are the most commercially significant provisions.

Business Profits (Article 7)

Business profits of a Swiss enterprise are taxable in India only if the enterprise carries on business through a permanent establishment (PE) in India. Profits are attributed to the PE on an arm's length basis, consistent with transfer pricing principles.

Dividends (Article 10)

Dividends paid by an Indian company to a Swiss resident are subject to a maximum withholding tax of 10% of the gross amount. Prior to 1 January 2025, the MFN clause had reduced this to 5% in Switzerland's interpretation, but this lower rate no longer applies following the MFN suspension.

Interest (Article 11)

Interest arising in India and paid to a Swiss resident is capped at 10% of the gross amount. Interest paid to the Swiss government, the Swiss National Bank, or wholly government-owned financial institutions is exempt from withholding tax.

Royalties and Fees for Technical Services (Article 12)

Both royalties and FTS are subject to a maximum withholding rate of 10% of the gross amount. This covers payments for the use of intellectual property, industrial or scientific equipment, and managerial, technical, or consultancy services.

Capital Gains (Article 13)

The capital gains provisions differentiate based on asset type:

• Immovable property: Gains taxable where the property is situated
• Movable business property: Gains from PE-related assets taxable in the PE country
• Ships and aircraft: Gains taxable in the country of the enterprise's residence
• Shares deriving value from immovable property: Gains taxable where the property is located
• Other shares: Generally taxable only in the seller's country of residence

The capital gains provisions have not been affected by the MFN clause suspension.

Withholding Tax Rates Summary

The following table provides a comprehensive comparison of DTAA rates with India's domestic withholding rates:

All DTAA rates are applied without surcharge and health and education cess, providing an additional effective saving compared to the domestic rate of approximately 20.8%-21.84%. For detailed rate breakdowns, see our India to Switzerland withholding tax rates page.

Permanent Establishment Rules

Article 5 of the India-Switzerland DTAA provides a detailed definition of permanent establishment, which determines when a Swiss enterprise becomes taxable in India on its business profits.

Fixed Place PE

A PE is defined as a fixed place of business through which the business of the enterprise is wholly or partly carried on. This includes a place of management, branch, office, factory, workshop, mine, oil or gas well, quarry, or any other place of extraction of natural resources.

Construction PE

A building site or construction, installation, or assembly project (including supervisory activities) constitutes a PE if it continues for more than six months. This is notably shorter than the 12-month threshold in the OECD Model Convention, reflecting the UN Model influence for developing countries.

Service PE

The furnishing of services, including consultancy services, by a Swiss enterprise through employees or other personnel creates a PE if such activities continue for a period or periods aggregating more than 90 days within any 12-month period. This is a stricter threshold than many other Indian DTAAs.

Profit Attribution

For construction contracts, profits are determined only on the basis of that part of the contract effectively carried out by the PE in India, preventing enterprises from attributing excess profits to the head office.

Tax Residency and Certificate Requirements

Claiming treaty benefits requires proper documentation of tax residency:

• Tax Residency Certificate (TRC): Swiss residents must obtain a certificate from the Swiss Federal Tax Administration or cantonal tax authority confirming tax residency. This is mandatory under Section 90(4) of the Indian Income Tax Act. Learn more about tax residency certificates.
• Form 10F: Must be filed electronically on the Indian Income Tax portal, providing details of tax residency status, tax identification number, and relevant period.
• Beneficial Ownership Declaration: The Swiss recipient must confirm that it is the true beneficial owner of the income and not acting as a conduit or agent.

Swiss tax residency for companies is typically determined by the place of incorporation or the place of effective management. For individuals, residency is based on domicile or habitual abode in Switzerland.

Mutual Agreement Procedure (MAP)

Article 26 of the DTAA provides for a Mutual Agreement Procedure to resolve cases of taxation not in accordance with the treaty:

• The taxpayer may present a case to the competent authority of the contracting state of which they are a resident within three years from the first notification of the action resulting in taxation not in accordance with the agreement
• The competent authorities shall endeavour to resolve the case by mutual agreement
• They may also consult together to eliminate double taxation in cases not provided for in the agreement
• The competent authorities may communicate directly with each other for reaching an agreement

India's Competent Authority for MAP cases is the Joint Secretary (Foreign Tax and Tax Research) in the Central Board of Direct Taxes (CBDT). Switzerland's Competent Authority is the Swiss Federal Tax Administration. For complex cross-border disputes, our tax advisory services can help navigate the MAP process.

How to Claim Treaty Benefits

The process for claiming benefits under the India-Switzerland DTAA involves several steps:

Step 1: Obtain a Tax Residency Certificate

The Swiss resident must obtain a TRC from the Swiss Federal Tax Administration or the relevant cantonal authority. The certificate must cover the tax year in which the income is earned.

Step 2: File Form 10F

Form 10F must be filed electronically on the Indian Income Tax e-filing portal. Required information includes status, nationality or country of incorporation, tax identification number, period of residential status, and address in Switzerland.

Step 3: Provide Supporting Documentation

The Swiss resident should provide to the Indian payer: (a) the TRC, (b) Form 10F acknowledgment, (c) self-declaration of beneficial ownership, and (d) any additional documents evidencing the nature of income.

Step 4: Apply Reduced Withholding Rates

The Indian payer deducts TDS at the DTAA rate under Section 195. If the payer has already deducted at the domestic rate, the Swiss resident can claim a refund by filing an Indian income tax return.

Step 5: File Form 15CA/15CB

For every remittance to Switzerland, the Indian payer must file Form 15CA electronically and obtain a Form 15CB certificate from a Chartered Accountant.

Companies structuring their India operations from Switzerland should also review our guide to registering a company in India from Switzerland and FEMA compliance services.

Frequently Asked Questions

What is the current dividend withholding rate under the India-Switzerland DTAA?

The current dividend withholding rate is 10% of the gross amount, effective from 1 January 2025 onwards. Previously, Switzerland had unilaterally applied a reduced rate of 5% under the MFN clause, but this was suspended following the Indian Supreme Court's ruling in the Nestle SA case.

Why did Switzerland suspend the MFN clause?

Switzerland suspended the MFN clause because the Indian Supreme Court ruled in October 2023 that the MFN benefit is not automatically applicable without a specific notification by the Indian government under Section 90 of the Income Tax Act. Switzerland cited this lack of reciprocity as the reason for suspending its unilateral application of the lower rate.

Does the MFN suspension affect interest, royalties, and FTS rates?

No. The MFN clause suspension only affects dividend rates. The withholding rates for interest (10%), royalties (10%), and fees for technical services (10%) remain unchanged under the original DTAA provisions.

What is the PE threshold for construction projects under this DTAA?

A building site or construction project constitutes a permanent establishment if it continues for more than six months. This is shorter than the standard 12-month threshold in the OECD Model, reflecting the treaty's accommodation of developing country interests.

Can Swiss residents claim the 5% dividend rate for income earned before 2025?

Potentially, yes. The benefit of the lower 5% rate under the MFN clause may continue to apply for dividend income earned during tax years 2018 to 2024, subject to the Indian tax authorities' position and any ongoing litigation.

How does this DTAA handle exchange of information?

The 2010 protocol updated Article 26 to meet OECD standards on exchange of information. India can request specific tax-related information from Switzerland, and vice versa. Banking secrecy cannot be invoked to refuse information requests, marking a significant shift from Switzerland's traditional banking confidentiality practices.

What are the service PE thresholds under this treaty?

A service PE is created if services are furnished through employees or other personnel for 90 days or more within any 12-month period. This is stricter than many other Indian DTAAs that use a 183-day threshold, making it important for Swiss companies to carefully monitor the duration of service projects in India.