New York-based private equity (PE) investor Tiger Global, on Monday (September 21), moved to the Delhi high court against the Authority of Advance Ruling (AAR) ruling, which denied the company of grandfather provision benefits under the India-Mauritius Double Tax Avoidance Agreement after the Flipkart exit in 2018.
The matter is listed to be heard today (September 22). People close to the matter told Mint that the AAR has not looked into all the aspects of the deal, before denying treaty benefits to Tiger Global. “There is enough substance and decision making in the deal structure to get India-Mauritius treaty benefits,” the person added, seeking anonymity.
Tiger Global had invested in Flipkart through Mauritius-based Tiger Global International II, III and IV Holdings. Later in 2018, it had sold its stake in Flipkart’s Singapore-based entity to Walmart’s Luxembourg entity FIT Holdings for over INR 14,500 Cr in 2. After the deal, Tiger Global had sought tax exemptions on capital gains with the income tax department under Section 197 of the Income Tax Act. However, the department had rejected the application.
After which the company had knocked on AAR’s doors to seek the tax exemption. AAR too rejected the plea earlier in June, saying that the “transaction was designed prima facie for the avoidance of tax.” It also noted that there is an “inescapable conclusion” that Tiger Global entities in Mauritius were established to get benefit under the India-Mauritius Double Taxation Avoidance Agreement (DTAA).
Further, AAR concluded that the “head and brain” of Tiger Global was based in the US, and the fund was ultimately controlled by “Mr X” (US-based director). It also pointed out that the decision for stake sale was taken by the board of directors of the Tiger Global but the real control over the decision of any transaction over $2,50,000 was exercised by Mr X only.
In addition, AAR also pointed out that Tiger Global had its stakes in Flipkart’s Singapore-based entity, therefore applicant isn’t eligible for the benefits listed under the India-Mauritius treaty. Meanwhile, Tiger Global maintained that since the shares of the Singapore-based entity of Flipkart derived their value substantially from assets located in India, it is entitled to benefits under Article 13 (4) of the India-Mauritius Treaty.
Earlier in February, other flipkart investors SoftBank, Naspers and Accel Partners had also reached out to AAR to seek clarity on tax-related issues arising out of Walmart acquisition of Flipkart. The stakeholders have accused Walmart of deducting taxes from their shareholdings to pay withholding tax to the government for capital gains made by them.