Representations on Supreme Court ruling in Nestle’s case on Most Favoured Nation (MFN) clause

Representations on Supreme Court ruling in Nestle’s case on Most Favoured Nation (MFN) clause

January 8, 2024


Taxation & Accountancy

Shri Sanjay Malhotra, I.A.S.
Revenue Secretary
Department of Revenue
Ministry of Finance
Government of India
Room No.128-B, North Block
New Delhi – 110 001


Sub: Representations on Supreme Court ruling in Nestle’s case on MFN clause

Double Taxation Avoidance Agreements (‘DTAAs’) are generally supplemented with ‘Protocols’ which operate as an addendum to DTAA. The Protocols to India’s DTAA with certain countries, which are members[1] of Organisation of Economic Cooperation and Development (OECD), have a Most Favoured Nation (MFN) clause which provides that if after the signature/entry into force of the tax treaty with the first State (original treaty), India enters into a DTAA on a later date with the third State, which is an OECD member, providing a beneficial rate of tax or restrictive scope for taxation of dividend, interest, royalty, Fees for Technical Services etc. the same benefit should be accorded to first State.

The issue of availability of beneficial provision of MFN clause has been settled by the Hon’ble Supreme Court in a batch of appeals with the lead case being of ACIT (International Taxation) vs. M/s Nestle SA, 2023 INSC 928 [Civil Appeal No(s). 1420 of 2023] wherein the Hon’ble SC adjudicated on two issues: a) whether MFN clause is to be given effect to automatically upon occurrence of a “trigger event” (namely, the date when India enters into DTAA with a third state granting a beneficial treatment) or through a notification issued by the Government; and b) whether there is any right to invoke MFN clause with respect to provisions of the third country with which India has entered into DTAA, which was not a member of the OECD at the time of entering the DTAA. The Hon’ble SC ruled in favour of the Tax Department on both issues which has given rise difficulties and practical challenges for taxpayers.

The Bombay Chamber is pleased to submit its representations on the fall out of the Hon’ble SC ruling and suggestions on steps that the Government can take to relieve the practical difficulties for the taxpayers. We trust the same shall be favourably considered by the Government.

The representatives of the Chamber would be pleased to meet the members of your esteemed Department to provide any further clarifications on the suggestions made in the attached representations.

Thanking you,

Yours sincerely,

Sandeep Khosla

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