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November 2023

MFN Clause — Some Nuances and Applications

By Mayur B. Nayak , Tarunkumar G. Singhal , Anil D. Doshi , Mahesh G. Nayak
Chartered Accountants
Reading Time 22 mins

INTRODUCTION

As one enters the month of tax filing for entities subject to transfer pricing, the international tax world has seen some major developments in the last few weeks, which could impact the way one analyses cross-border transactions. Globally, the world is getting closer to the implementation of a two-pillar solution. Closer home, there was a significant buzz in the international tax community in India after the Hon’ble Supreme Court delivered its decision in the case of AO vs. M/s Nestle SA (TS-616-SC-2023) on 19th October, 2023, on the application of the Most Favoured Nation (‘MFN’) clause in the context of tax treaties (‘DTAA’).

While an in-depth analysis of the above decision of the Apex Court is not within the scope of this article, given the landmark ruling with far-reaching implications, the authors have sought to cover some of the nuances of the MFN article in the background of this ruling.

BACKGROUND

Before one understands the matter before the Supreme Court, it is important to understand what is MFN and the various versions of the MFN that are found in DTAAs entered into by India. The MFN clause is generally typically found in Bilateral I

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