Alerts & Updates 24th Oct 2023

SC rules on interpretation of tax treaty – notification mandatory for MFN clause to apply

Authors

Jishaan Jain Associate Partner | Mumbai
Mitesh Jain Partner | Mumbai

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The Supreme Court (SC) in the recent ruling in the matter of Nestle SA has examined the most favoured nation (MFN) clause contained in India’s Double Tax Avoidance Agreements (DTAA) with Netherlands, France, and Switzerland.

The SC held that to give effect to a tax treaty or to its Protocol changing terms and conditions that alters existing provisions of the law, a notification is required to be issued under section 90(1) of the Income-tax Act, 1961. Further, it is also held that for invoking MFN clause, the third country should be a member of the Organisation for Economic Co-operation and Development (OECD) when the DTAA is signed and obtaining OECD membership on a later date has no significance.

Our alert discusses this judgment and more importantly the potential implications for MNC’s operating in India.

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