Maggi, the iconic two-minute noodles loved by millions of Indians, might soon get expensive. The expected price hike stems from a key change in international trade ties: Switzerland will suspend the Most-Favored-Nation (MFN) clause under its 1994 Double Taxation Avoidance Agreement (DTAA) with India starting January 1, 2025. This move is likely to raise costs for Swiss companies in India, including Nestle, the maker of Maggi.
What Triggered the Dispute?
The controversy stems from a 2023 ruling by India’s Supreme Court, which clarified that the Most-Favored-Nation (MFN) clause in the Double Taxation Avoidance Agreement (DTAA) is not automatically applicable. The ruling stated that India must explicitly notify its applicability for the clause to take effect.
Switzerland contested this position, arguing that the lack of automatic implementation denied it benefits India provides to other countries under more favorable tax treaties. Swiss authorities highlighted disparities in dividend taxation, as Indian agreements with countries like Slovenia and Lithuania offer better terms. Feeling disadvantaged and citing a lack of reciprocity, Switzerland decided to suspend the MFN clause, labeling the existing framework as unfair.
Consequences for Swiss Enterprises
One of the most immediate impacts will be felt by Swiss companies like Nestle. With the MFN clause suspended, these firms will face a higher dividend tax rate of up to 10%, compared to the lower rates they previously enjoyed under the treaty.
Nestle, which had sought a reduced 5% tax rate based on India’s agreements with other nations, saw its appeal rejected by the Supreme Court. This increase in tax liabilities will likely affect the company’s bottom line and, by extension, its pricing strategies in India.
Impact on Consumers
The suspension of the MFN clause is not just a legal or corporate matter—it is set to have a direct impact on consumers. Companies like Nestle, faced with higher operating costs, are likely to pass on this burden to customers. This means popular products like Maggi noodles and other Nestle offerings could see price increases in the coming months.
For Indian households, where Maggi is a pantry staple, even a slight price rise could have a noticeable impact. The situation highlights how international tax policies can influence everyday commodities, creating ripple effects that touch ordinary lives.