The Supreme Court’s ruling denying tax treaty relief under the Indo–Mauritius Double Taxation Avoidance Agreement (DTAA) to Tiger Global on gains from the Flipkart–Walmart transaction risks unsettling foreign investors, for whom clarity, consistency and predictability in a country’s policy and legal framework are often prerequisites for committing capital.
Tax experts and legal practitioners combing through the 152-page judgment pointed out that the apex court’s decision could impact all current and prior merger and acquisition deals for foreign investors where such treaty benefits have been claimed (unless barred by statute of limitation), risking reopening many cases to fresh scrutiny by the tax authorities.
The impact will be most felt, but not limited to, foreign direct investments from two jurisdictions, Mauritius and Singapore, which accounted for nearly 50 per cent of FDI flows to India over the last quarter of a century. Foreign investors have over the years preferred these two countries to route their investments, totalling close to $355 billion, to India between 2000 and 2025.
Shaily Gupta, partner at Khaitan & Co, said the firm has been reached by global clients since last evening to understand the impact of the ruling. “The judgment has hit international sentiments. Flow of FDI may be impacted,” she observed.
According to Amit Baid, head (tax), BTG Advaya, the ruling has serious implications for private equity funds, hedge funds and FPIs using Mauritius and Singapore based structures, including for investments prior to 2017.
Grandfathering
The Supreme Court judgment overturned a favourable ruling Tiger Global had obtained from Delhi High Court which held the transaction — the sale of shares held by three Mauritius-based entities in a Singapore firm having underlying assets (e-commerce giant Flipkart) in India to Walmart — as grandfathered under the DTAA.
India introduced an anti-tax avoidance regulation GAAR (General Anti Avoidance Rule) from April 1, 2017, which can override the tax treaty benefits under DTAA. Tiger Global’s investment took place in 2011 but the stake sale took place in 2018, after GAAR came into vogue.
The SC held that transactions yielding tax benefits after GAAR’s effective date do not enjoy immunity just because the investment structure was set up earlier.
Potency of TRC
The apex court also rejected that a tax residency certificate (TRC), which the Tiger Global Mauritius entities had, is conclusive proof of entitlement to treaty benefits.
Foreign investors structured their India exposure for decades on the basis of explicit government policy, binding circulars, and consistent judicial affirmation that a valid TRC conferred treaty protection.
However, SC rejected the idea.
“Simply obtaining a TRC from a foreign jurisdiction will no longer guarantee protection under a tax treaty. The SC affirmed that while a TRC will be evidence of residence, it does not bar the tax department from inquiring into the real ownership and control, or from piercing the corporate veil in cases of suspected treaty abuse,” Adity Chaudhury, partner at solicitor firm Argus Partners, wrote in a note for clients.
Need for balance
Dinesh Kanabar, chairman and CEO of Dhruva Advisors, observed that while the sovereign right to tax is unquestionable, revisiting and effectively neutralising a conscious policy choice retrospectively risks unsettling long-standing expectations.
“The real concern is not the court’s emphasis on substance, but the signal it sends to global capital: that even grandfathered investments may be vulnerable to reopening,” Kanabar said, who voted for balance between revenue generation and need for foreign capital.
“At a time when India seeks to attract and retain foreign investment amid slowing inflows, clarity and consistency in policy application are as critical as the legitimate pursuit of revenue and anti-abuse objectives,” he pointed out.
Chaudhury, however, pointed out that clients are now cautious about taking aggressive tax positions and looking to structure deals in a compliant manner. “Even though a setback, the judgment may not weaken the appeal of India as an FDI destination,” she argued.
Gouri Puri, partner at Shardul Amarchand Mangaldas & Co, held a different view. “Private equity players and FPIs need to look at their investment structures and rethink returns,” she said.