Latest update on the India-Netherlands dividend WHT rate: Ruling from the Supreme Court of India

This blog is related to our previous blogs about the effective dividend withholding tax (“WHT”) rate as per the provisions of the Double Taxation Avoidance Agreement (“DTAA”) between the Netherlands and India. In this blog, we cover the latest update on this topic – an Indian Supreme Court (“SC”) ruling regarding the interpretation of Most Favoured Nation (“MFN”) clauses in Indian tax treaties with various OECD member countries.

15 Feb. '24 Neha Mohan

This Indian SC ruling has caused quite a stir among companies invested in India as it could lead to a flurry of tax and penalty demands from the Indian tax authorities. Notably, with regard to the Netherlands, the impact of the SC ruling appears to be limited to the dividend WHT rate under the India-Netherlands DTAA. The dividend WHT rate in Indian DTAAs is only relevant since 1 April 2020 (i.e., when India abolished its domestic Dividend Distribution Tax).

The WHT rate and definition of Fees for Technical Services (“FTS”) under the India-Netherlands DTAA do not seem to be affected by the ruling of the Indian SC. However, the Indian SC’s view that MFN clauses in Indian DTAAs are triggered only upon notification by the Indian tax authorities necessitates a closer look at all Indian DTAAs containing MFN clauses. For an in-depth analysis of all Indian DTAAs that might be affected by this Indian SC ruling, look out for our next blog on this topic.

On 19th October 2023, the Supreme Court of India pronounced its decision in the case of Assessing Officer Circle (International Taxation) vs. M/S Nestle SA & others (Civil Appeal No(s). 1420 of 2023). The apex Indian court ruled that the Most Favoured Nation (“MFN”) clauses in Indian tax treaties are not triggered unless notified by the concerned authority under Sec. 90(1) of the Income Tax Act, 1961. In doing so, the Indian Supreme Court (“SC”) has overturned several judgements of the Delhi High Court and gone against the widely held view that an MFN clause is an integral part of a Double Tax Avoidance Agreement (“DTAA”) and is triggered automatically, without the requirement of a specific notification under domestic law.

Neha Mohan

Neha Mohan is a Tax Adviser at NovioTax.

More about Neha Mohan

Back Download as PDF