The Tiger-Flipkart ruling will echo way beyond Tiger and Flipkart

A bench of justices J.B. Pardiwala and R. Mahadevan said the real control of Tiger Global’s Mauritian entities lay with its US parent, backing the tax department's position. Once the mechanism of using Mauritian entities is found to be illegal or sham, it ceases to be “a permissible avoidance" and becomes “an impermissible avoidance" or “evasion", the apex court ruled.

In 2018, the Mauritian entities of Tiger Global sold shares of Flipkart Singapore (which owned Flipkart India) to Walmart for $1.6 billion. Tiger Global's request for a tax exemption citing the Mauritius tax treaty was rejected by the tax department, but upheld by the Delhi High Court. Thursday's SC ruling overturns the HC verdict, making Tiger liable to pay tax in India.

The judgment potentially changes how India taxes foreign investors and how it reads its most important tax treaty, the India-Mauritius Double Taxation Avoidance Agreement (DTAA). Experts said that it may also prompt the tax department to scrutinize similar transactions closer and set the stage for more litigation.

According to Gouri Puri, partner, Shardul Amarchand Mangaldas & Co, it will impact all current and prior mergers and acquisitions where investors have claimed tax treaty benefits.

“Private equity players and foreign portfolio investors need to look at their investment structures and rethink returns. Tax litigation around tax treaty claims may increase and impact the tax insurance market," she said.

“But the big takeaways are dilution of tax residency certificate, use of general anti-avoidance rule (GAAR), and a key landmark in the evolution of India’s tax treaty jurisprudence," she added.

Court room

In 2016, India amended the India-Mauritius tax treaty to curb tax avoidance, stating shares bought on or after 1 April 2017 would be taxed in India. Investments made before this date continued to enjoy tax exemption, subject to certain conditions. The key issue in the Flipkart case, therefore, was whether Tiger Global could claim tax exemption under the treaty, or whether its Mauritius-based entities were merely “front" companies controlled from the US.

Shares acquired before 1 April 2017 under DTAA attracted no capital gains tax, while shares acquired between 1 April 2017 and 31 March 2019 were taxed at 50% of the prevailing capital gains tax rate in India. Shares acquired after 31 March 2019 are taxed at the same rates as in India.

The Supreme Court said the focus must be on the substance of the transaction, rather than merely the location where the company is registered. It said that after the tax treaty changes, having a tax residency certificate alone is not enough. Even if an investment was made before the cut-off date, that protection will not apply if the structure was mainly used to get a tax benefit.

The judges said the law was changed to stop the practice of routing investments through places like Mauritius solely to avoid tax, often called treaty-shopping. These changes, they said, were made to ensure only genuine investors with a genuine business presence gained tax benefits, not shell or routing companies.

This means the tax department can now look behind an entity's structure and verify who actually controls it and why it was set up.

Impact

The verdict opens the door to re-examine past exits by foreign investors and even exits in initial public offerings, said Siddarth Pai, co-founder, 3one4 Capital. "The tax department will closely scrutinize exits by Mauritius-based entities. While many fund managers have pivoted to Singapore, alternative investment funds (AIFs) or GIFT IFSC, the past presence in Mauritius will need investors and advisors to re-examine their tax risk and make provisions," Pai added.

Ankit Jain, partner at Ved Jain and Associates, said the Supreme Court’s ruling could have a major bearing on similar disputes, including the Blackstone case under the India-Singapore tax treaty and the Sanofi case under the India-France treaty. Thursday's decision, he noted, allows tax authorities to look beyond tax residency certificates and examine whether offshore entities are merely conduit structures without real commercial substance.

What next for Tiger?

The judgment records that the three Mauritius entities of the firm received sale proceeds of about ₹14,440 crore from the 2018 Walmart–Flipkart deal. This included around ₹13,122 crore for Tiger Global International II, ₹1,260 crore for Tiger Global International III and about ₹58 crore for Tiger Global International IV. Tax experts said that once Tiger's total liability is calculated, including interest and possible penalties, Tiger's tax bill could be a whopping ₹15,000 crore.

Tiger Global’s immediate option is to file a review petition before the Supreme Court, on limited grounds such as an error apparent on the face of the record. If the review is dismissed, the final option is filing is a curative petition, which can be filed only in rare cases to prevent a miscarriage of justice. Such petitions are heard by a larger bench and are allowed only where there is a clear violation of principles of natural justice or evidence of judicial bias.

Tax lawyers said it would be difficult for Tiger Global to seek international arbitration, a route successfully used by Vodafone earlier. That is because the Vodafone case involved a bilateral investment treaty, whereas the Tiger Global case involves a tax treaty.

“International arbitration is a mechanism under bilateral investment treaties. It is a long and complex process. A case has to be made out that the tax claim amounts to a breach of investment treaty obligations under the fair and equitable treatment standard, subject to tax carve-outs under the relevant treaty. Any attempt at arbitration would require proving that the tax demand violates these standards, which is a difficult and uncertain path," said Mukesh Butani, managing partner at BMR Legal Advocates.

The American investor, which has backed a range of Indian companies including InfraMarket, PhonePe, Sharechat, and NoBroker, is yet to comment on its course of action. Flipkart did not respond to emailed queries.

What about other treaties?

The ruling may have wider ramifications for other tax treaties, including those with Singapore and the Netherlands, which are commonly used for offshore holding structures.

“Tax authorities may feel emboldened to apply more rigorous scrutiny to these structures, particularly where there are concerns around lack of commercial substance, circular ownership, or decision-making. While the judgment does not invalidate these treaties at the outset, it raises the threshold for taxpayers to demonstrate genuine economic presence and commercial rationale," said Amit Maheshwari, managing partner at AKM Global.

Maheshwari added that the verdict is likely to influence how private equity and venture capital investors use the India–Mauritius treaty in the future. Even grandfathered investments may not be immune from scrutiny if they lack economic substance, prompting investors to reassess Mauritius-based holding structures and, in some cases, consider restructuring, diversifying jurisdictions, or shifting to more substance-driven platforms.

Tax sovereignty

While the main judgment was authored by Justice R. Mahadevan, Justice J.B. Pardiwala, in a separate concurring note, stressed the importance of national tax sovereignty. Justice Pardiwala observed that tax treaties are meant to prevent double taxation, not to enable double non-taxation, and cannot be used to erode India’s right to tax income that genuinely arises from its territory. He added that after the introduction of GAAR and the 2016–17 amendments to the India–Mauritius treaty, India is entitled to look through artificial structures and deny treaty benefits where arrangements lack real commercial substance.

The casefile

The Tiger-Flipkart story goes back more than a decade. Tiger Global invested in Flipkart in its early years.

Like many foreign investors at the time, the global venture capital and private equity firm routed its investments through Mauritius. This was common because the India-Mauritius tax treaty, signed in 1983, allowed companies based in Mauritius to sell shares of Indian companies without paying capital gains tax in India.

Mauritius eventually emerged as India’s largest source of foreign direct investment (FDI), accounting for about 25% of total inflows. Between April 2000 and September 2024, investments routed through Mauritius amounted to over $177 billion, including $5.34 billion in the first half of 2024-25, according to data from the Department for Promotion of Industry and Internal Trade (DPIIT).

Tiger Global set up several companies in Mauritius, which invested in Flipkart’s Singapore holding company between 2011 and 2015. Back then, Flipkart was owned through a Singapore parent, a structure many Indian startups used to attract foreign money.

In 2016, India changed the treaty to stop tax avoidance. It was decided that shares bought on or after 1 April 2017 would be taxed in India. However, older investments were “grandfathered", meaning they would still enjoy tax exemption, subject to certain conditions.

Tiger Global’s investments were made before 2017; so on paper, the company enjoyed the protection.

When Walmart agreed in 2018 to buy about 77% of Flipkart for around $16 billion, Tiger Global sold part of its stake. Its Mauritian companies together received about $1.6 billion.

Before the deal closed, the companies requested permission to receive the money without tax deduction. The tax department refused, saying the Mauritius firms were only routing vehicles and that the real control and decision-making were in the US. According to the department, the structure was created only to avoid Indian tax.

Tiger Global moved the Authority for Advance Rulings (AAR). In 2020, the AAR ruled that Tiger Global had sold shares of Flipkart’s Singapore holding company, not of an Indian company, and that the India-Mauritius tax treaty was not intended to grant exemption for the sale of shares in a foreign company, even if that company’s business was primarily conducted in India. Tiger Global challenged this before the Delhi high court.

In August 2024, the high court ruled in Tiger Global’s favour, saying that using a tax-friendly country does not automatically mean tax evasion. It held that Tiger’s Mauritian companies were real, had business activity and long-term investments, and that the tax department could not dismiss the case without a full examination.

The tax department then appealed to the Supreme Court, which stayed the high court order in January 2025.

In the top court, Tiger Global argued that its Mauritian companies are genuine residents of that country, supported by official tax residency certificates, that their investments were made before 2017 and are therefore protected, and that real decisions were taken by boards in Mauritius.

The tax department countered that the Mauritius setup was only a cover, that a residency certificate is not a “magic pass", and that the real “head and brain" of the business was in the US.