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Supreme Court’s Landmark Ruling in Tiger Global–Flipkart Exit: A Paradigm Shift in India’s International Tax Jurisprudence
Introduction
In a significant development in India’s international tax landscape, the Supreme Court’s recent ruling in the Tiger Global–Flipkart exit case has reshaped the contours of treaty protection, anti-avoidance, and cross-border investment structuring. The judgment, delivered last week, signals a decisive shift away from a formalistic reliance on Tax Residency Certificates (TRCs) toward a more rigorous examination of economic substance.
The case originates from Tiger Global’s 2018 exit from Flipkart as part of Walmart’s $16 billion acquisition. While the transaction was structured through offshore holding entities, the Indian tax authorities challenged the claim of treaty benefits, alleging that the structure lacked genuine commercial substance.
By elevating the principle of “substance over form” and affirming the primacy of the General Anti-Avoidance Rule (GAAR) over treaty benefits in cases of abusive arrangements, the Supreme Court has fortified the Revenue’s ability to scrutinize complex cross-border structures. For global investors and private equity funds, this ruling necessitates a fundamental rethinking of how investments into India are structured and governed.
Judicial Philosophy: From Form to Substance
At the heart of the judgment lies a clear judicial stance: tax treaties cannot be used as instruments of avoidance. The Court emphasized that treaty benefits are intended to prevent double taxation, not to facilitate tax leakage through artificial structures.
This approach aligns with global anti-avoidance trends, mirroring the OECD’s Base Erosion and Profit Shifting (BEPS) framework and India’s own legislative trajectory since the introduction of GAAR in 2017.
Analogy:
A TRC is now akin to an entry ticket to a building—it grants access, but does not guarantee what lies inside will be accepted without verification.
10 Key Takeaways from the Supreme Court Ruling
1. Tax Residency Certificate (TRC) is no longer an absolute shield
A TRC is now merely an eligibility condition for treaty benefits, not conclusive evidence of beneficial ownership or tax entitlement. Indian tax authorities are empowered to look beyond the certificate and assess real economic substance.
2. India’s sovereign taxing rights prevail over treaty convenience
The Court reinforced that India cannot relinquish its taxing jurisdiction solely because a foreign tax authority has issued a residency certificate. Sovereignty in taxation remains paramount.
3. GAAR can override tax treaties
Under Section 90(2A) of the Income-tax Act, GAAR takes precedence over treaty provisions where an arrangement is deemed an Impermissible Avoidance Arrangement (IAA)—even if technical treaty conditions appear to be met.
4. ‘Grandfathering’ is not absolute
Investments made before April 1, 2017 are not automatically immune from GAAR scrutiny. If tax benefits accrue after this date and exceed ₹3 crore in a financial year, GAAR can still be invoked.
5. Substance over form is now the governing test
The Court endorsed both statutory GAAR and judicial anti-avoidance principles (JAAR), allowing tax authorities to pierce multilayered holding structures and examine who truly exercises control and economic ownership.
6. Conduit structures face heightened risk
Entities lacking real decision-making power, independent management, or operational presence—serving merely as pass-through vehicles—are likely to be disregarded for tax purposes.
7. Indirect transfers may fall outside treaty protection
Even where shares of a foreign entity are sold, if that entity derives substantial value from Indian assets, the transaction may still attract Indian tax, notwithstanding treaty claims.
8. Treaty shopping is expressly discouraged
The Court clarified that tax treaties are meant to avoid double taxation, not enable tax avoidance. This aligns with India’s 2016 treaty amendments incorporating Principal Purpose Tests (PPT) and Limitation of Benefits (LOB) clauses.
9. Higher compliance burden for foreign investors
Foreign funds must now demonstrate real commercial substance, including:
Active board involvement
Independent management decisions
Genuine operational presence
Economic risk-bearing capacity
Legal form alone will no longer suffice.
10. Broader implications across jurisdictions
While the case involved Mauritius, the reasoning extends to Singapore, Cyprus, Cayman Islands, Netherlands, and other treaty jurisdictions. Expect increased scrutiny in all cross-border exits from India.
Implications for Investors and Structuring
Pros of the Ruling
Strengthens India’s tax base
Reduces abusive treaty shopping
Encourages genuine commercial investment
Aligns India with global anti-avoidance standards
Cons / Challenges
Increased tax uncertainty for legacy investments
Higher compliance and documentation burden
Potential deterrence for some passive foreign investors
More litigation in transitional cases
Example:
A Mauritius holding company with no employees, no independent directors, and decisions effectively taken elsewhere may now be disregarded, exposing gains to Indian tax.
What This Means for Future Deals
Going forward, foreign investors should consider:
Establishing real economic presence in holding jurisdictions
Maintaining robust board minutes and decision records
Demonstrating business rationale beyond tax efficiency
Reviewing pre-2017 structures for GAAR exposure
Aligning with BEPS-compliant tax governance
Key Takeaways (Executive Summary)
The Supreme Court has decisively curtailed the automatic protection previously associated with TRCs.
GAAR now clearly prevails over treaty benefits in abusive cases.
Substance, not structure, will determine tax outcomes.
Offshore conduit vehicles face significant risk of challenge.
The ruling has far-reaching implications across all major tax treaty jurisdictions investing into India.
