Last week’s Supreme Court judgement holding Tiger Global liable for paying tax on capital gains made on its 2018 sale to Walmart of its stake in Flipkart held through entities in Mauritius might have opened a Pandora’s box.
It denies Tiger Global exemption on shares acquired before a 2017 cut-off date under a double taxation avoidance treaty between Mauritius and India on the ground that the deal involved shell firms and the underlying value-generating assets were located in India.
This has echoes of the Vodafone case some years ago. In tax lingo, the court lifted the corporate veil to determine who was behind visible entities. But in doing so, it pushed law interpretation into a decidedly subjective realm.
Even if investment vehicles were structured to avoid tax, it must not always be seen as evasion if the letter of no legal provision is violated. Importantly, we must not go on a wild goose chase trying to uncover tax liabilities in other past deals. Not only may such determinations prove elusive, the uncertainty thrown open could scare away foreign investors. If our tax law is found to have gaps, update it. But let’s not go down the slippery slope of retrospective taxation.