Sale of Flipkart shares: Tiger Global may move HC against AAR’s denial of tax waiver

By: |
June 11, 2020 2:45 AM

Tiger Global had applied for a certification of nil withholding before it sold its Flipkart shares to Walmart’s Luxembourg entity FIT Holdings SARL.

Sale of Flipkart shares, Tiger Global, AAR,DTAA,Flipkart stake sale, Tiger Global shares, flipkart sharesThe sale was part of the $17-billion acquisition by the US retail giant, in which Tiger Global sold shares worth over Rs 14,000 crore.

Mauritius-based investment firm Tiger Global International may approach the Delhi High Court to challenge the income-tax department ruling that the firm wasn’t eligible for tax exemption on capital gains regarding its Flipkart stake sale, in accordance with India-Mauritius double taxation avoidance agreement (DTAA), as the actual control of the company was not in Mauritius but in the US. The Authority for Advanced Ruling (AAR) in New Delhi ruled in favour of the department earlier this year.

Tiger Global had applied for a certification of nil withholding before it sold its Flipkart shares to Walmart’s Luxembourg entity FIT Holdings SARL. The sale was part of the $17-billion acquisition by the US retail giant, in which Tiger Global sold shares worth over Rs 14,000 crore.

Tiger Global applied to the income tax department for a certificate that would acknowledge that it would have no liability to pay tax on capital gains due to India-Mauritius DTAA. However, the income tax department concluded that the firm’s directors ‘based in Mauritius were puppets and not independent’, and the real control to make crucial decision was vested with the US-based director.

The firm then applied to AAR for a ruling. The department submitted to the AAR that the element of good faith needed to be retained for applicability of the treaties. Both the India-Mauritius treaty and the India-USA treaty have captioned “prevention of tax avoidance” as one of the purpose of DTAA. Therefore, the good faith application of these treaties requires the element of tax avoidance and treaty abuse to be examined by the tax administration while invoking treaty provisions, the income tax department had submitted.

The AAR agreed with the department and said: “Control and management of the applicants (Tiger Global) was not in Mauritius but in USA. Therefore, we have no hesitation to conclude that the entire arrangement made by the applicants was with an intention to claim benefit under India-Mauritius DTAA, which was not intended by the lawmakers, and such an arrangement was nothing but an arrangement for avoidance of tax in India.”

Amit Maheshwari, tax partner at AKM Global, a consulting firm, said, “The AAR has the power to reject the application if the transaction is prima facie designed to evade tax. This clause results in tax department challenging almost every application in AAR alleging tax evasion. AAR has denied the application of the India-Mauritius treaty. This will potentially result in the tax department invoking GAAR and denying treaty benefits even in the case of the Mauritius treaty. The treaty has a grandfathering clause for investments prior to April 1, 2017 and has not incorporated minimum standards to prevent treaty abuse in accordance with BEPS Action Plan.”

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Unsustainable debt symptom of fundamental issues in company’s biz model: SBI executive
2ICICI Bank shuts down operations in Sri Lanka
3Risk averse banks continue to lend with caution; bank credit up marginally, deposit growth stable