Most Favoured Nation or MFN finds its origin in international trade relations. The WTO (World Trade Organisation) rules stipulate that all trade partners must be accorded the same treatment. Accordingly, if an advantage, favour, privilege or immunity is granted by a contracting party/ state to one partner/ state, the same is required to be immediately and unconditionally accorded to all other contracting parties/ states.
The MFN principle gained some momentum recently with a Supreme Court order in the Nestle SA case that dealt with the application of MFN clauses in treaties between India and other countries. One of the questions of law in the Nestle matter was whether a change in position of law pursuant to a DTAA (Direct Tax Avoidance Agreement) executed between two countries would come into force immediately upon execution of the DTAA. The Hon’ble Supreme Court has now ruled that absent a formal notification the same would not be effective.
Please click here to read the full article by Raj Ramachandran, published in ET Edge.