**Supreme Court Rules on Tiger Global’s Tax Exemption Claim**
The Supreme Court of India has ruled that the real control of Tiger Global’s Mauritian entities lies with its US parent company, supporting the tax department’s stance. The court determined that if the use of Mauritian entities is deemed illegal or a sham, it transitions from “permissible avoidance” to “impermissible avoidance” or “evasion.” This ruling follows the 2018 sale of Flipkart Singapore shares, which owned Flipkart India, to Walmart for $1.6 billion. Tiger Global’s request for a tax exemption based on the Mauritius tax treaty was initially rejected by the tax department but was upheld by the Delhi High Court. However, the recent Supreme Court decision overturns this verdict, making Tiger Global liable for taxes in India.
This judgment could significantly alter how India taxes foreign investors and interprets the India-Mauritius Double Taxation Avoidance Agreement (DTAA). Experts suggest that it may lead the tax department to scrutinize similar transactions more closely, potentially resulting in increased litigation. Gouri Puri, a partner at Shardul Amarchand Mangaldas & Co, noted that this ruling will affect all current and past mergers and acquisitions where investors have sought tax treaty benefits. She emphasized that private equity and foreign portfolio investors may need to reassess their investment structures and returns, as tax litigation surrounding treaty claims is likely to rise.
In 2016, India amended the India-Mauritius tax treaty to prevent tax avoidance, stating that shares purchased on or after April 1, 2017, would be taxed in India. Investments made before this date continued to enjoy tax exemptions under certain conditions. The central issue in the Flipkart case was whether Tiger Global could claim tax exemption under the treaty or if its Mauritian entities were merely “front” companies controlled from the US. Shares acquired before April 1, 2017, under the DTAA were exempt from capital gains tax, while those acquired between April 1, 2017, and March 31, 2019, were taxed at 50% of the prevailing capital gains tax rate in India. Shares acquired after March 31, 2019, are taxed at the same rates as in India.
The Supreme Court emphasized that the focus should be on the substance of the transaction rather than just the registration location of the company. Following the changes to the tax treaty, merely possessing a tax residency certificate is insufficient for tax exemption.
**FAQ**
**Q: What impact does the Supreme Court ruling have on foreign investments in India?**
A: The ruling may lead to increased scrutiny of foreign investments and tax treaty claims, potentially resulting in higher tax liabilities for investors using similar structures.