Current Affairs: Passage of the Day - 16 December 2024 | Current Affairs: Daily, Weekly & Monthly - CLAT PDF Download

Directions: Read the passage carefully and answer the questions that follow.
Dividends of Indian entities will be taxed at 10% in Switzerland from January 1 as the European nation has suspended the most favoured nation (MFN) clause in its Double Taxation Avoidance Agreement (DTAA) with India.
In a December 11 statement, the Swiss finance department said the move follows a ruling by Supreme Court of India last year that the MFN clause doesn't trigger if a country joins the OECD (Organisation for Economic Cooperation and Development) and India signed a treaty with the country before that country became an OECD member.
India signed tax treaties with Colombia and Lithuania for tax rates on certain types of income which were lower than the rates it provided to OECD nations. Colombia and Lithuania later joined the grouping.
In 2021, Switzerland interpreted that Colombia and Lithuania's OECD membership meant a 5% rate for dividends would apply to its tax treaty with India under the MFN clause, rather than the 10% outlined in the agreement.
In October 2023, the Supreme Court of India reversed a lower court's decision, and concluded that the applicability of MFN clause provided “was not directly applicable in the absence of 'notification' in accordance with Section 90 of the Income Tax Act.”
That case involved Nestle, a Swiss multinational food and drink processing conglomerate based in the country's Vevey town.
Meanwhile, the Ministry of External Affairs (MEA) said the double taxation treaty may require a “renegotiation” with Switzerland in view of India's trade pact with the member states of the European Free Trade Association (EFTA).
"My understanding is that because of EFTA, the double taxation treaty that we have; it's going to be renegotiated. That is one aspect of it," MEA spokesperson Randhir Jaiswal said.
India and the EFTA member states of Norway, Switzerland, Iceland and Liechtenstein sealed a free trade deal in March. Under it, the four European countries are looking to invest $100 billion in India over the next 15 years.
[Excerpt from HT "Switzerland Suspends ‘Most Favoured Nation Status’ to India" Dated 16/12/24]

Q1: What is the most-favored-nation (MFN) clause in a tax agreement designed to ensure?
(a) Equal tax treatment among all trading partners
(b) Special privileges for select nations
(c) Increased tax rates for foreign companies
(d) Preferential treatment for developing nations

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Q2: When did India and Switzerland first establish their tax agreement?
(a) 1990
(b) 1994
(c) 2000
(d) 2010

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Q3: From January 1, 2025, what will be the new tax rate on dividends for Indian companies in Switzerland?
(a) 5%
(b) 7.5%
(c) 10%
(d) 12.5%

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Q4: What was the reason for Switzerland removing the MFN clause from its tax agreement with India?
(a) Increased competition in the Swiss market
(b) Clarification of the MFN clause by the Indian Supreme Court
(c) A new bilateral trade agreement
(d) Pressure from other OECD countries

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Q5: What was the Supreme Court's ruling regarding the MFN clause in 2023 related to?
(a) Applicability of tax exemptions for small businesses
(b) The Nestle case
(c) Increasing tax rates for foreign companies
(d) Removal of trade tariffs for Indian companies

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