SC upheld the tax department’s claim that capital gains made on Tiger Global’s $1.6 Bn sale of Flipkart shares to Walmart were taxable in India
The investor had argued that it was not liable to pay capital gains tax on its returns from the Flipkart stake sale under the DTAA signed between India and Mauritius
Tiger Global had invested in Flipkart through a Mauritius entity, a move seen by Indian authorities as being solely for tax-saving purposes
In a major setback for US-based Tiger Global, the Supreme Court has ruled against the investment firm in the tax liability case pertaining to its stake sale in Flipkart in 2018.
The SC set aside a 2024 Delhi High Court ruling in favour of the investor today and upheld the tax department’s claim that capital gains made on Tiger Global’s $1.6 Bn sale of Flipkart shares to Walmart were taxable in India, ET reported.
The judgment, pronounced by a bench of Justices JB Pardiwala and R Mahadevan, is being seen as a reversal of the India-Mauritius Double Taxation Avoidance Agreement (DTAA) and is expected to have a far reaching impact on how foreign investors are taxed in the country.
At the heart of the issue was Tiger Global’s stake sale in Flipkart to Walmart as part of the American company’s 77% acquisition of the ecommerce giant. Tiger Global had made the investment in Flipkart via its Mauritius-based entity Tiger Global International III Holdings.
The investor argued that it was not liable to pay capital gains tax on its returns from the Flipkart stake sale due to the DTAA signed between India and Mauritius. However, Indian tax authorities rejected this argument, saying the Mauritius based entities were “fronts” for investments to avoid paying taxes, and the ultimate beneficiary of its investments was the US-based parent company.
Moreover, India had tweaked the DTAA treaty with Mauritius in 2016, declaring all foreign investments made through Mauritius after April 2017 as tax deductible. Since Tiger Global’s investment was made prior to the cut-off date, it was deemed exempted.
But, the Authority for Advance Rulings (AAR) denied the DTAA benefits to Tiger Global in 2020, stating that the investment appeared to have been routed through Mauritius solely for tax-saving purposes. It also noted that the purpose of the DTAA was not to award capital gains exemptions when the transfer of shares involved non-Indian companies.
While this decision was overturned in 2024 by the Delhi High Court, the SC stayed it last year and has set aside the HC’s order now.
Tiger Global has been one of the most prolific investors in the Indian startup ecosystem. It entered India in 2007 and went on to back a number of unicorns like Flipkart, Zomato (now Eternal), Ola, Policybazaar, among others. However, it has slowed down deal participation in India in the last few years.
In November last year, Tiger Global exited Ather Energy by offloading its entire 5.09% stake in the EV company for INR 1,204 Cr via bulk deals. It also sold Urban Company’s shares worth nearly INR 330 Cr in a pre-IPO deal last year and cut its stake in Ola Electric in August.
The SC’s order is expected to impact the way overseas PE and VC firms plan their investments in India. “Tiger Global case will impact all current and prior M&A deals where tax treaty benefits have been claimed. Private equity players and FPIs need to look at their investment structures and rethink returns. Tax litigation around tax treaty claims may increase and impact the tax insurance market,” said Gouri Puri, partner at Shardul Amarchand Mangaldas & Co.
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