Delhi HC upholds Mauritius tax treaty benefits, overturns AAR ruling against Tiger Global
Tax-friendly jurisdictions like Mauritius are aimed to aid global commerce, transcend trade barriers, benefit nations-and not necessarily conjure suspicions of taxmen who should refrain from throwing additional barriers to deny the advantages of tax treaties between countries to bonafide investors. These aren't the words of any international investor, large corporate house or legal eagle defending them. It's the court which said it while squashing a verdict of the advance ruling authority and the stand of the Income tax (I-T) department which had claimed capital gains tax in the marque deal of 2018 when entities of the private equity house Tiger Global sold their stake in Flipkart to Walmart.
The ruling by a division bench of the Delhi High Court would cheer up many foreign investors who had used Mauritius vehicles to purchase shares of Indian companies before April 2017 after which the tax benefits were considerably reduced due to a 2016 revision in the treaty. The grandfathering provision spared all offshore investors from Mauritius of capital gains tax on sale of shares which were bought before April 2017.
Tiger Global firms, which had tax residency certificates (TRCs) from Mauritius, bought Flipkart shares between 2011 and 2015. Nonetheless, the Authority for Advance Ruling (or AAR, which spells out the taxability of a certain transaction) and I-T department held that Tiger Global must pay tax as Tiger's Mauritius vehicles lacked substance, acted as "mere facades" of the TGM LLC (USA), and were simply colourable devices used to escape tax by taking advantage of the tax treaty between India and Mauritius. The High Court gave its ruling this week following a petition that Tiger Global International Holding had filed challenging the AAR ruling.
