India’s Supreme Court has delivered a significant ruling against Tiger Global in a tax dispute related to its 2018 exit from Flipkart during Walmart’s acquisition. The decision, announced Thursday, reinforces New Delhi’s authority to scrutinize offshore structures used to minimize capital gains tax and could impact future foreign investment strategies in the rapidly expanding Indian market. The court upheld the tax authorities’ position that Tiger Global could not utilize its Mauritius-based entities to claim treaty benefits.
The case stems from Tiger Global’s sale of its Flipkart stake to Walmart for approximately $1.4 billion. Indian tax officials challenged the firm’s use of Mauritius-based entities, arguing they were designed to avoid Indian taxes. This ruling follows a 2024 Delhi High Court decision overturning a 2020 order from the Authority for Advance Ruling, which initially sided with the tax authorities.
Supreme Court Backs India in Tax Dispute with Tiger Global
The core of the dispute revolved around whether Tiger Global could leverage the India-Mauritius Double Taxation Avoidance Agreement (DTAA) to shield profits from Indian capital gains tax. The firm argued that, due to the timing of its initial investment – before April 1, 2017 – it qualified for a “grandfathering” clause protecting older investments from newer tax regulations. However, the Supreme Court rejected this claim, emphasizing India’s sovereign right to tax income originating within its borders.
The Issue of Treaty Shopping
The court’s judgment specifically addressed the practice of “treaty shopping,” where companies establish entities in jurisdictions with favorable tax treaties to reduce their overall tax burden. According to the court, structures designed primarily to circumvent tax obligations are unacceptable. The bench stated that any attempt to dilute India’s taxing power through artificial arrangements poses a threat to its sovereignty and national interests.
This decision builds upon a broader trend in India towards prioritizing “substance over form” in tax assessments. Tax experts, like Ajay Rotti, founder and CEO of Tax Compass, suggest the ruling serves as a warning against aggressive tax planning. He noted on X (formerly Twitter) that treaty protection will likely not be automatically granted to offshore entities lacking genuine commercial activity.
Tiger Global initially invested in Flipkart in 2009, gradually increasing its stake to around $1.2 billion over several funding rounds. The 2018 sale to Walmart represented a substantial return on investment, but also triggered the scrutiny of Indian tax authorities. The firm sought a certificate confirming no tax withholding, a request that was ultimately denied.
Implications for Foreign Investment
The Supreme Court’s ruling is expected to have significant ramifications for foreign funds investing in India. While the India-Mauritius DTAA remains in place, the decision clarifies that its benefits will not be extended to structures deemed primarily tax-avoidance schemes. This could lead to increased scrutiny of investment structures and potentially higher tax liabilities for some investors.
Additionally, the ruling may influence how future cross-border deals are structured and priced. Foreign funds, which have increasingly viewed India as a key growth market, may need to reassess their investment strategies to account for the heightened risk of tax challenges. The decision could also encourage investors to prioritize direct investments rather than routing funds through intermediary jurisdictions.
The Ministry of Finance has not yet issued a formal statement following the Supreme Court’s decision. However, sources within the ministry indicate the government views the ruling as a positive step towards ensuring a fairer and more transparent tax system. The government has been actively working to amend its tax laws and treaties to address loopholes and prevent tax evasion.
Meanwhile, Tiger Global has not publicly commented on the ruling. The firm retains the option to petition the Supreme Court for a review of the verdict, although such petitions are rarely successful. The outcome of any potential review petition remains uncertain.
Looking ahead, investors will be closely monitoring how Indian tax authorities apply the principles established in this case to other similar transactions. The next few months will likely see increased due diligence on investment structures and a greater emphasis on demonstrating genuine commercial substance. The long-term impact on foreign investment flows into India will depend on how effectively the government balances its sovereign taxing rights with the need to attract and retain foreign capital.
