The Supreme Court of India made a big decision in “Authority for Advance Rulings (Income Tax) v. Tiger Global International II Holdings” that Tiger Global’s Flipkart exit would not get treaty tax benefits. This case, which came about because of Tiger Global’s $2 billion sale of Flipkart, shows how cross-border tax planning is now being looked into. The Court said that if the main goal of the structure was to avoid taxes, then profits from selling shares in a foreign company that gets value from Indian assets are taxable in India.
Background of the Case: Selling a stake in Flipkart
Investors from all over the world put money into Flipkart, India’s biggest online store. Three Tiger Global affiliates in Mauritius bought shares in Flipkart’s Singapore holding company from 2011 to 2015. In May 2018, these companies in Mauritius sold their stake in Flipkart to Walmart’s Luxembourg unit for about $2 billion. Tiger Global asked Indian officials for a “nil” tax withholding certificate after the sale, saying that the India–Mauritius DTAA made them exempt. The tax department said no, saying that the deal was meant to avoid paying Indian taxes.
Changes that are important:
- From 2011 to 2015, Tiger Global’s companies in Mauritius bought shares in Flipkart Singapore.
- In 2018, Walmart’s Luxembourg branch bought these shares for about $2 billion.
- Tax Claim: Tiger Global asked the Mauritius DTAA to let them off the hook for capital gains tax.
- AAR Ruling (2019): The Authority for Advance Rulings said the structure was meant to avoid Indian taxes and wouldn’t give a decision.
- Delhi HC (2024): The High Court found no fraud and gave treaty relief because the shares were bought before 2017.
- The Supreme Court (2026) looked at the treaty’s scope, the GAAR, and when the exit would happen.
The Law on the GAAR, along with the India-Mauritius DTAA
Before 2017, Article 13(4) of the DTAA said that the investor’s home country was the only place where they could make money by selling shares. Because Mauritius didn’t tax financial gains, Indian share transfers didn’t have to pay Indian tax. To be eligible for the exemption, you often had to get a Tax Residency Certificate (TRC) from the government of Mauritius.
A lot of important changes have happened since 2017:
- On April 1, 2017, India put into effect the General Anti-Avoidance Rules (GAAR) to stop people from thinking too hard about their tax planning. GAAR says that the government can take away the benefits of a treaty if the main goal of the treaty is to avoid paying taxes.
- Section 90(2A): This rule, which was added in 2012, says that the General Anti-Abuse Regulation (GAAR) can take away any treaty benefit if the provisions are used in a way that is not allowed.
The DTAA Amendment, which was passed in April 2017, lets India tax capital gains on sales of Indian firm shares that were bought on or after April 1, 2017. It was still okay to sell shares that had been bought before that date under the old rules.
Timeline: Before 2017, there was a full exemption. After April 2017, GAAR and new treaty rules went into effect. People bought Tiger Global shares before 2017 and sold them in 2018.
Problems in front of the Supreme Court
The Supreme Court answered a number of questions:
- Advance Ruling: Did the AAR make the right choice by not making any ruling because the deal looked like it was set up to avoid taxes?
- Taxability: Is it against Indian law to sell Flipkart’s Singapore shares (with Indian assets) as a “indirect transfer”?
- DTAA Scope: If the gains are taxable, does the Mauritius treaty still protect them? (The AAR said that Article 13 didn’t mean to cover this indirect sale.)
- GAAR vs. Grandfathering: Tiger Global’s shares were bought before 2017, so they might be covered by the treaty’s grandfather clause. But the exit happened after GAAR. Would GAAR or the new treaty still deny relief?
The Supreme Court’s Decision
The Supreme Court agreed with the tax department’s appeal and threw out the Delhi HC. The main points were:
- Advance Ruling Bar: The Court agreed that the AAR had a good reason to stop its work. The plan looked like a way to avoid paying taxes, so there was no need for an advance ruling.
- Taxability: Selling the Flipkart Singapore shares was seen as a “indirect transfer” of Indian assets. In India, capital gains are subject to taxes.
- No Treaty Help: The Court said that the companies in Mauritius were “mere conduits” and didn’t really exist. They were run from outside the country and set up to take advantage of treaty benefits.
- GAAR Applies: The deal was a “impermissible avoidance arrangement” under GAAR. The sale happened in 2018, so GAAR and the new treaty rules still applied, even though the investment was made in 2018.
- Denial of Exemption: The Court said that the DTAA did not allow for an exemption. The new treaty and GAAR make the old Article 13(4) exemption useless.
- TRC Not Final: A TRC from Mauritius alone doesn’t mean you’ll get tax relief. Authorities can look beyond the paperwork to see what the deal is really about and what it means.
- Tax Sovereignty: Justice Pardiwala said that taxing income made in one’s own country is a basic right of sovereignty that cannot be taken away by smart treaty structures.
In India, the profits from the Flipkart stake sale are taxable. The structure was mostly to avoid taxes, so the treaty benefits were not given. Substance won out over form.
What this means for investors from other countries
This decision has big effects:
- The risk of treaty shopping: Just sending money through Mauritius (or any other tax haven) doesn’t guarantee an exemption anymore. If the main reason for the structure is to avoid Indian taxes, the exemption can be denied.
- Substance needed: Offshore holding companies must show that they really do business in their home country by having management, staff, and decision-making there. Having just a local address or a TRC will be looked at closely.
- Grandfathering is limited: A sale after GAAR went into effect can still be taxed, even if the investment was made before 2017. If anti-avoidance rules apply, exits after 2018 can’t use the old exemption.
- Past exits at risk: Investors should look over past deals. If they are still within the time limits, the tax department may look at earlier transactions that used treaty benefits again.
- Wide application: Even though this case was about Mauritius, the same rules will apply to all tax treaties. Any foreign fund that uses treaty structures will have to show that its business is real.
- Investors should be careful: private equity and venture capital funds will need to rethink their exit plans.
- Tax planning re-evaluated: Under India’s tax rules, common cross-border exits, such as selling an offshore holding company, will be looked at more closely. Tax risk must be looked at in familiar structures.
- Better deal protections: People who make cross-border deals may want strong tax indemnities, warranties, or escrow clauses to protect them from possible tax reassessments.
The message is clear for investors and advisors: the deal’s economic substance will be tested. A treaty or residency certificate by itself won’t protect you. Transactions must follow both the letter and the spirit of the law.
Final Thoughts
The Tiger Global decision is a big deal for India’s tax law. It confirms that India has the right to tax profits made in its own economy and shows that anti-avoidance rules are strong. This decision will help with future tax disputes and treaty readings. As courts use a strict substance-over-form test, people will now be more careful when planning cross-border investments. It’s no longer okay to use treaty loopholes; it’s important to follow India’s tax rules very carefully. Both investors and advisors should keep in mind that honesty and a real business purpose are very important in cross-border deals with India. This case will set a standard for future treaty disputes and planning across borders with India.
