The Swiss confusion

Constantly varying interpretations of treaty provisions can potentially dent India's image

Switzerland's decision to suspend the Most Favoured Nation (MFN) treatment for India under the two countries' 30-year-old double-taxation avoidance agreement (DTAA) from January 1 shows that, as far as India is concerned, the more things change, the more they remain the same. Despite the rapid changes in the external environment, the difference in understanding or interpretation of the country's laws and rules by companies, tax administration, and judiciary has remained constant. The result is there for all to see: India's reputation as an attractive investment destination has taken quite a few knocks because of its unpredictable, ever-changing tax rules and their interpretation. Though in a different context, the storm over Vodafone and Nokia tax dispute is still cited by many foreign investors as shining examples of India's tax arbitrariness.