India’s prime courtroom has dominated in opposition to Tiger International in a tax case stemming from its Flipkart exit throughout Walmart’s 2018 takeover, a choice that strengthens New Delhi’s skill to problem offshore treaty buildings and will elevate tax danger for world funds relying on predictable exits from one of many world’s fastest-growing main markets.
On Thursday, the Indian Supreme Court docket backed the tax authorities in a dispute over whether or not Tiger International might use its Mauritius-based entities to say safety below the India–Mauritius tax treaty and keep away from paying capital positive factors tax in India on income linked to its exit within the Walmart–Flipkart deal. The choice put aside a 2024 Delhi Excessive Court docket ruling that had overturned a 2020 order by the Authority for Advance Ruling, which had discovered the agency was, prima facie, avoiding tax and due to this fact not eligible for treaty reduction.
The ruling is being carefully watched by buyers, because it strengthens India’s hand in difficult offshore “treaty-routing” buildings which have lengthy been used to cut back tax on high-value exits. It might additionally elevate uncertainty over how future cross-border offers are structured and priced, at a time when overseas funds are relying on India as a key development market.
In its verdict, a two-judge bench said (PDF) that when a transaction seems, at first look, to be designed to keep away from revenue tax, India’s advance-ruling mechanism can’t be used to hunt safety.
Tiger International first invested in India’s e-commerce agency Flipkart in 2009 with an initial $9 million investment, earlier than increasing its exposure to about $1.2 billion over a number of funding rounds, TechCrunch had reported earlier. The agency later bought its stake to Walmart for about $1.4 billion in 2018.
The tax dispute facilities on how Tiger International structured that funding — by entities in Mauritius — and whether or not these automobiles might declare safety below the India–Mauritius tax treaty to defend capital positive factors from Indian tax.
Whereas promoting Flipkart’s stake throughout Walmart’s $16 billion deal, Tiger International sought a certificates permitting no tax to be withheld, arguing that as a result of the shares have been acquired earlier than April 1, 2017, the positive factors have been exempt from Indian capital positive factors tax below a “grandfathering” clause, defending older investments from the newer tax regime, within the India–Mauritius double taxation avoidance settlement. Indian tax authorities rejected the request in 2020, questioning the offshore construction chosen by the funding agency.
The Supreme Court docket bench framed the dispute as a difficulty of sovereign taxing powers, warning in opposition to buildings which might be designed primarily to dilute that authority.
“Taxing an revenue arising out of its personal nation is an inherent sovereign proper of that nation,” the bench stated, including that “any dilution of this energy by synthetic preparations is a direct risk to its sovereignty and long-term nationwide curiosity.”
The judgment needs to be learn as a warning in opposition to aggressive tax planning quite than a wholesale dismantling of the India–Mauritius treaty framework, Ajay Rotti, a tax skilled and founder and CEO of tax advisory agency Tax Compass, wrote on X. He stated the choice reinforces a broader shift towards “substance over type,” signaling treaty safety could not apply routinely the place offshore entities lack actual industrial exercise.
Tiger International didn’t reply to a request for remark.
The agency can search a evaluation of the decision, although such petitions are not often profitable.
