In a landmark ruling on the use of international tax treaties by companies, the Supreme Court on Thursday held that Tiger Global’s $1.6 billion stake sale in Indian e-commerce firm Flipkart to Walmart in 2018 is subject to taxes, overturning a Delhi High Court judgment that had ruled in favour of the US-based investor.
A bench of Justices JB Pardiwala and R. Mahadevan set aside the High Court’s August 2024 order, which had quashed the income tax department’s demand. This ruling is keenly watched by foreign investors. The legal dispute relates to how the US investment firm used the India–Mauritius tax treaty to claim tax exemptions and New Delhi’s fierce objections to it. The ruling is expected to have implications for how India applies tax principles in cross-border deals.
What led to the dispute- Implication for future
The dispute stems from Tiger Global’s partial exit from Flipkart in 2018, when Walmart acquired a controlling stake in the Indian e-commerce company in one of the country’s largest cross-border transactions.
As per a Mint report, Tiger Global received about $1.6 billion from the sale and had routed its Flipkart investments through several Mauritius entities, Tiger Global International II, III and IV Holdings, a structure widely used by foreign investors at the time, given the treaty signed in 1983 that allowed capital gains from the sale of Indian shares to be taxed only in Mauritius.
India amended the treaty in 2016 to curb tax avoidance, providing that shares acquired on or after 1 April 2017 would be taxable in India, while older investments were grandfathered, subject to conditions. Tiger Global’s investments were made before 2017.
Walmart transaction
Ahead of the Walmart transaction, Tiger Global’s Mauritius entities sought clearance from Indian tax authorities to receive sale proceeds without tax deduction. The request was rejected, with the tax department arguing that the entities were merely routing vehicles and that effective control and decision-making resided in the US, the Mint report added.
Legal trail
Tiger Global then approached the Authority for Advance Rulings (AAR), which in 2020 held that the firm had sold shares of Flipkart’s Singapore holding company, not an Indian company, and that the treaty was not intended to exempt gains from the sale of shares in a foreign entity, even if its underlying business was in India, Mint added.
The Delhi High Court overturned the AAR ruling in August 2024, holding that routing investments through a tax-efficient jurisdiction did not automatically amount to tax evasion and that Tiger Global’s Mauritius entities could not be dismissed without a detailed factual examination.
The tax department appealed, and the Supreme Court stayed the Delhi High Court’s order in January 2025. As per Mint, Tiger Global argued in the top court that its Mauritius entities were genuine residents, backed by valid tax residency certificates, that investments were made prior to 2017 and therefore grandfathered, and that decisions were taken by boards based in Mauritius. The tax department countered that residency certificates were not conclusive and that the “head and brain” of the investment structure was located in the US.