New Delhi: India’s retrospective tax laws are in the spotlight again after hedge fund Tiger Global was denied relief for a tax dispute involving its $1.6 billion stake sale in Flipkart to Walmart in 2018. This development is being keenly watched by foreign investors, as the landmark ruling by the Supreme Court is expected to shape cross-border deals.
The case was filed by the Authority for Advance Rulings (AAR) against Tiger Global and its entities, which had invested in shares in e-commerce major Flipkart Private Limited between 2011-2015. In 2018, the shares were sold to Luxembourg-incorporated Fit Holdings S.A.R.L, as part of Walmart’s acquisition of Flipkart. In total, Tiger Global’s three Mauritius-based entities received $2.083 billion from the transaction.
“In the case at hand, there is clear and convincing prima facie evidence to demonstrate that the arrangement was designed with the sole intent of evading tax, and the assessees have failed to furnish sufficient material to rebut this presumption,” SC Justices J.B. Pardiwala and R. Mahadevan wrote in the judgment, after setting aside a Delhi High Court order.
“The revenue has proved that the transactions in the instant case are impermissible tax-avoidance arrangements, and the evidence prima facie establishes that they do not qualify as lawful… The applications preferred by the assessees relate to a transaction designed prima facie for tax avoidance and were rightly rejected as being hit by the threshold jurisdictional bar to maintainability…,” the order added.
The tax avoidance mentioned here is under the Double Tax Avoidance Agreements (DTAAs) that India has signed with Mauritius and Singapore. Until now, a tax avoidance certificate (TRC) was deemed sufficient to avoid tax under the treaty’s benefits, but this case is now proving otherwise.
Though the amount of tax to be paid hasn’t been mentioned, this is expected to depend on the profit accrued from the deal, as per a Reuters report.
This development is likely to spook FIIs, who have withdrawn a record Rs. 2.09 lakh crore from the markets last year, even as hopes remain high for them to re-invest in capital-intensive sectors.
