On 19 October 2023, the Indian Supreme Court (SC) pronounced a significant ruling on the applicability of Most Favored Nation (MFN) clause found in some of India’s tax treaties as under:
- The SC ruled that to give effect to a tax treaty or any Protocol changing its terms or conditions, which has the effect of altering the existing provisions of law, notification under Section 90(1) of the Indian Tax Laws (ITL) is mandatory. With reference to MFN clause already agreed to as part of an existing treaty, the beneficial provisions entered with third country cannot be made automatically applicable unless a notification is issued.
- The SC held that the beneficial treatment agreed with a third country can be applied by invoking the MFN clause, only if the third country was a member of Organisation for Economic Co-operation and Development (OECD), at the time of signing its tax treaty with India.
