India’s Supreme Court Ruling Challenges Offshore Tax Strategies in Tiger Global’s Flipkart Exit
In a landmark decision, India’s Supreme Court has ruled against Tiger Global in a tax dispute arising from its 2018 exit from Flipkart during Walmart’s acquisition. This verdict empowers Indian authorities to scrutinize offshore tax structures more rigorously, potentially increasing tax liabilities for global investment funds operating in the country.
Background of the Case
Tiger Global, a prominent U.S.-based investment firm, began its investment journey with Flipkart in 2009, initially injecting $9 million into the Indian e-commerce startup. Over subsequent funding rounds, the firm’s total investment in Flipkart escalated to approximately $1.2 billion. In 2018, Tiger Global divested its stake to Walmart for about $1.4 billion, coinciding with Walmart’s $16 billion acquisition of a 77% stake in Flipkart.
The Tax Dispute
The crux of the dispute lies in Tiger Global’s use of Mauritius-based entities to channel its investments into Flipkart. The firm contended that these entities were eligible for protection under the India–Mauritius Double Taxation Avoidance Agreement (DTAA), thereby exempting the capital gains from Indian taxation. Specifically, Tiger Global argued that since the shares were acquired before April 1, 2017, they qualified for a grandfathering clause in the DTAA, which shields older investments from newer tax regulations.
However, Indian tax authorities challenged this assertion in 2020, questioning the legitimacy of the offshore structure and denying the request for a tax exemption certificate. The authorities posited that the Mauritius-based entities were primarily established to circumvent Indian tax obligations.
Supreme Court’s Verdict
The Supreme Court’s ruling overturned a 2024 Delhi High Court decision that had favored Tiger Global. The apex court emphasized that transactions appearing to be designed primarily for tax avoidance cannot seek protection under the advance-ruling mechanism. The bench stated, Taxing an income arising out of its own country is an inherent sovereign right of that country, underscoring that any dilution of this power through artificial arrangements poses a direct threat to national sovereignty and long-term interests.
Implications for Global Investors
This judgment is a significant development for international investors utilizing offshore structures to invest in India. It signals a shift towards a substance over form approach, where the actual commercial activities and intentions behind offshore entities are scrutinized over their formal structures. Investors may now face increased uncertainty regarding the structuring and pricing of future cross-border deals in India.
Industry Reactions
Tax experts interpret the ruling as a caution against aggressive tax planning rather than a complete overhaul of the India–Mauritius treaty framework. Ajay Rotti, founder and CEO of tax advisory firm Tax Compass, noted that the decision reinforces the importance of genuine commercial substance in offshore entities to qualify for treaty benefits.
Conclusion
The Supreme Court’s decision in the Tiger Global case marks a pivotal moment in India’s taxation landscape, particularly concerning foreign investments. It underscores the necessity for global funds to reassess their investment structures and ensure compliance with Indian tax laws, prioritizing genuine commercial substance over mere tax advantages.
