India’s Supreme Court has ruled that Tiger Global must pay taxes in India on capital gains from its 2018 sale of shares in Flipkart to Walmart, a judgement that has raised concerns among global investors about the country’s approach to taxing offshore transactions.
It was found that Tiger Global’s use of Mauritius-based entities to structure the deal constituted an impermissible arrangement designed primarily to avoid Indian tax and concluded that holding a tax residency certificate alone was not sufficient to claim benefits under the India-Mauritius tax treaty.
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The transaction, which saw Tiger Global sell its entire Flipkart stake for around $1.6bn, had initially been considered exempt from Indian capital gains tax due to a longstanding bilateral treaty with Mauritius.
The 2017 amendment to this treaty had removed such exemptions for post-2017 investments but preserved them for deals involving shares acquired before the change.
However, the Supreme Court’s decision overturned previous interpretations, including one by the Delhi High Court, and determined that Indian authorities could examine whether investment structures existed mainly to avoid tax.
India has attracted large sums of foreign capital via Mauritius over recent decades, with government data showing more than $171bn in inflows over a 23-year period.
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By GlobalDataExperts suggest this ruling opens up completed and future deals to greater scrutiny from Indian tax officials, particularly where authorities allege that intermediary entities are merely conduit companies.
Legal professionals report increased concern among international investors following the judgement.
The amount Tiger Global now faces in taxes and penalties remains unclear but may approach $1.5bn, according to estimates mentioned in industry analysis.
The company has not commented publicly on the ruling or its implications, reported Reuters.
The Supreme Court’s decision signals a possible shift in India’s application of anti-avoidance measures and is expected to prompt multinational investors to review their investment channels into India.
