SC: Tiger Global liable to pay tax for Flipkart stake sale, Pg21

Key Highlights:

• The Supreme Court ruled that Tiger Global entities are liable to pay tax in India on capital gains from the 2018 sale of Flipkart shares to Walmart.
• The ruling overturned a Delhi High Court order from August 28, 2024, which had upheld Tiger Global's claim of tax exemption under the India-Mauritius Double Taxation Avoidance Agreement (DTAA).
• The tax authorities had rejected Tiger Global's request for a "nil" withholding tax certificate, arguing that the entities were not independent in their decision-making.
• The Authority for Advance Rulings (AAR) had also rejected Tiger Global's claim in March 2020, stating that the exemption applied only to shares of an Indian company.

Detailed Insights:

• The case revolves around the interpretation of the India-Mauritius DTAA and its "grandfathering" clause, which exempts capital gains on shares acquired before April 1, 2017.
• Tax authorities argued that the Flipkart stake sale was a preordained arrangement for tax avoidance, as Tiger Global is ultimately controlled by Tiger Global Management LLC, USA, through a network of entities in the Cayman Islands and Mauritius.
• The Supreme Court's decision reinforces the government's efforts to prevent tax evasion through treaty abuse and ensures that foreign entities pay taxes on gains from assets with underlying value in India.
• This ruling could have implications for other investment firms using similar structures to invest in India and may lead to increased scrutiny of such arrangements by tax authorities.

Key Concepts Involved:

• Double Taxation Avoidance Agreement (DTAA): An agreement between two countries to avoid taxing the same income twice.
• Capital Gains: The profit earned from the sale of an asset, such as shares or property.
• Grandfathering Clause: A provision that exempts certain existing activities or arrangements from new regulations or laws.