Tiger Global loses India tax case tied to Walmart-Flipkart deal in blow to offshore playbook

India’s apical tribunal has ruled against Tiger Global successful a taxation lawsuit stemming from its Flipkart exit during Walmart’s 2018 takeover, a determination that strengthens New Delhi’s quality to situation offshore pact structures and could rise taxation hazard for planetary funds counting connected predictable exits from 1 of the world’s fastest-growing large markets.

On Thursday, the Indian Supreme Court backed the taxation authorities successful a quality implicit whether Tiger Global could usage its Mauritius-based entities to assertion extortion nether the India–Mauritius taxation pact and debar paying superior gains taxation successful India connected profits linked to its exit successful the Walmart–Flipkart deal. The determination acceptable speech a 2024 Delhi High Court ruling that had overturned a 2020 bid by the Authority for Advance Rulings, which had recovered the steadfast was, prima facie, avoiding taxation and truthful not eligible for pact relief.

The ruling is being intimately watched by investors, arsenic it strengthens India’s manus successful challenging offshore “treaty-routing” structures that person agelong been utilized to trim taxation connected high-value exits. It could besides rise uncertainty implicit however aboriginal cross-border deals are structured and priced, astatine a clip erstwhile overseas funds are counting connected India arsenic a cardinal maturation market.

In its verdict, a two-judge seat said (PDF) that erstwhile a transaction appears, astatine archetypal glance, to beryllium designed to debar income tax, India’s advance-ruling mechanics cannot beryllium utilized to question protection.

Tiger Global archetypal invested successful India’s e-commerce steadfast Flipkart successful 2009 with an archetypal $9 cardinal investment, earlier expanding its vulnerability to astir $1.2 cardinal implicit aggregate backing rounds, TechCrunch had reported earlier. The steadfast aboriginal sold its involvement to Walmart for astir $1.4 cardinal successful 2018.

The taxation quality centers connected however Tiger Global structured that concern — done entities successful Mauritius — and whether those vehicles could assertion extortion nether the India–Mauritius taxation pact to shield superior gains from Indian tax.

While selling Flipkart’s involvement during Walmart’s $16 cardinal deal, Tiger Global sought a certificate allowing nary taxation to beryllium withheld, arguing that due to the fact that the shares were acquired earlier April 1, 2017, the gains were exempt from Indian superior gains taxation nether a “grandfathering” clause, protecting older investments from the newer taxation regime, successful the India–Mauritius treble taxation avoidance agreement. Indian taxation authorities rejected the petition successful 2020, questioning the offshore operation chosen by the concern firm.

The Supreme Court seat framed the quality arsenic an contented of sovereign taxing powers, informing against structures that are designed chiefly to dilute that authority.