Relief For Tiger Global As Delhi HC Overturns AAR Ruling On Flipkart Deal

The Delhi High Court has reportedly overturned an order of Authority for Advance Rulings (AAR) denying private equity firm Tiger Global’s tax exemption under the India-Mauritius Double Tax Avoidance Agreement (DTAA) when it exited Flipkart in 2018.

As per an ET report, the court has said that tax-friendly jurisdictions like Mauritius are aimed to aid global commerce, transcend trade barriers, benefit nations-and not necessarily conjure suspicions of taxmen who should refrain from throwing additional barriers to deny the advantages of tax treaties between countries to bonafide investors.

The court’s ruling will likely bring relief to numerous foreign investors who utilised Mauritius-based entities to buy shares in Indian companies before April 2017. This date marks the point after which tax benefits were significantly curtailed due to a 2016 revision of the India-Mauritius tax treaty. 

The ruling upholds the “grandfathering” provision, which exempts these investors from capital gains tax on the sale of shares acquired before the April 2017 deadline.

Besides, the court highlighted that TGM LLC was the investment manager, not the parent, of Tiger’s Mauritius entities. It rejected claims that the Mauritius entities lacked substance, noting they pooled over 500 investors from 30 jurisdictions, incurred sufficient expenses, and met conditions to establish adequate ‘substance.’ Additionally, the Court dismissed the notion that guidance from Tiger USA made the Mauritius entities mere puppets.

Tiger Global firms, which had tax residency certificates (TRCs) from Mauritius, bought Flipkart shares between 2011 and 2015. However, the AAR and the I-T department argued that these entities were mere facades for TGM LLC (US) to evade taxes under the India-Mauritius tax treaty. 

Following a petition from Tiger Global International Holding, the Delhi High Court ruled in favour of Tiger Global, overturning the AAR’s decision this week.

In 2018, Tiger Global sold its stake in Flipkart’s Singapore-based entity to Walmart’s Luxembourg firm FIT Holdings for over INR 14,500 Cr. The PE firm had made its investment through Mauritius-based entities Tiger Global International II, III, and IV Holdings. 

Given that the participating companies were outside India, Tiger Global requested an exemption from capital gains tax. However, the tax department argued that Tiger Global must pay capital gains tax in India, as Flipkart’s primary revenue stream originated from the country.

Tiger Global also sought tax relief under the India-Mauritius Double Tax Avoidance Agreement (DTAA), which allows Mauritius-based firms investing in Indian companies to pay capital gains tax only in Mauritius. Despite this, the income tax department and the Authority for Advance Ruling (AAR) rejected the DTAA claim, stating that since the shares sold were of Flipkart’s Singapore-based entity, the deal could not benefit from the DTAA.

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