Tiger Global case bolsters Mauritius as base for India investments: Official

“It's a landmark case for entities using Mauritius for investing in India and elsewhere because it sets a precedent in terms of a lot of questions that have been raised," Samade Jhummun, the chief executive officer of Mauritius Finance, told Mint. Mauritius Finance is the government-backed body that represents the country’s financial services sector.

Last month, the Delhi High Court overturned an order of the Authority of Advance Rulings denying Tiger Global Management the benefits of the pre-2017 India-Mauritius Double Tax Avoidance Agreement (DTAA) on the capital gains made from selling its investments in Flipkart in 2018. From April 2017, India and Mauritius dropped a tax provision that exempted Mauritius-based entities from capital gains taxes in India.

Also Read: Mint Explainer: Why Tiger Global’s tax win is a big victory for Indian companies

Tiger Global claimed nil withholding tax on the capital gains on its Flipkart stake sale since the entities that had invested in Flipkart were based in Mauritius and established before 2017.

However, the quasi-judicial body had decided in favour of the taxman, ruling that the investment was routed through Mauritius merely to avail tax benefits and there was not enough substance to the business there otherwise. It denied the tax benefits to Tiger Global despite pre-2017 investments from Mauritius being grandfathered – meaning that they are exempted from taxation as per the new DTAA.

The ruling that Tiger Global did not have sufficient substance in Mauritius was despite the fact that the funds used to invest in Flipkart held tax residency certificates, which are issued by the local tax authorities and can be used as proof for availing DTAA benefits.

Reasoned judgement

The favourable ruling by the Delhi High Court on 28 August has sent a clear message to Indian and Mauritian authorities that documentation issued by the authorities in other jurisdictions is not to be questioned, Jhummun said.

The ruling will also allay fears of those using Mauritius to invest in India in the future, he said. Mauritius-based entities still benefit from beneficial taxation rates on income from interest, dividends as well as on gains made from derivatives.

Also Read: Are DTAA benefits applicable to MFs?

“It sends a message, and it gives an opportunity to investors to better understand how things are being assessed and what is the interpretation if a case goes to court," Jhummun said.

Indian tax experts agreed.

“The Delhi High Court judgement in the case of Tiger Global is an extremely well-reasoned judgement and has laid down detailed reasoning why the India-Mauritius tax treaty exemption should apply for shares acquired prior to 1st April 2017," said Ketan Dalal, managing director of Katalyst Advisors.

He said that even when the facts of the case are not as strong as they were in the Tiger Global case, and a Mauritius entity has been used like a passthrough for tax purposes with little local substance or decision-making, the capital gains should still be exempted from taxation based on prior circulars issued by the Central Board of Direct Taxes in 1992 and 2000.