Foreign investors and private equity firms operating in India are making anxious calls to advisers and lawyers after a Supreme Court ruling earlier this month strengthened the government's hand in tax disputes.
On 15 January, India's top court ruled that US investment firm Tiger Global must pay tax in India on the sale of its stake in e-commerce giant Flipkart to Walmart in 2018. The 152-page judgment overturned a 2024 Delhi high court decision that had allowed Tiger Global to claim tax relief under a decades-old India–Mauritius tax treaty.
The ruling, which could reshape how foreign investors exit their Indian investments, sets out a tougher interpretation of tax treaties. It allows authorities to deny treaty benefits if offshore investment structures are deemed to be sham entities with little commercial substance - even when investors hold valid documentation.
The judgement gives India wide powers to scrutinise any offshore corporate deal. But experts warn it could unsettle international investors and hurt business sentiment.
Some lawyers who wanted to remain unnamed told the BBC that their clients were worried that the ruling could lead to scrutiny of old transactions and share sales long thought to be settled.
The judgment opens up unjustifiable windows for tax authorities to scrutinise any offshore corporate deal, says Ketan Dalal, managing director of Katalyst Advisors. This can undermine policy stability and certainty, which are critical for doing business in India.
The Tiger Global case dates to 2018, when US retail giant Walmart bought Flipkart in one of the largest e-commerce deals of the time. Tiger Global, which invested through three Mauritius-based entities, sold its entire 17% stake for about $1.6bn (£1.19bn).
Tiger Global argued that its gains were shielded from Indian tax because the investment was held through entities in Mauritius, invoking a long-standing tax treaty between the two countries. It relied on tax residency certificates issued by Mauritius, which had traditionally been accepted as sufficient proof to claim treaty benefits.
However, Indian tax authorities rejected the claim and argued that the Mauritian firms served as conduits and were used only to avoid taxes, with no real business purpose.
The Supreme Court has sided with Indian officials, ruling that tax certificates alone do not guarantee treaty benefits and that the investment structure lacked real commercial substance. It held that foreign investors cannot rely on complex offshore set-ups when those entities don't carry out genuine business activities of their own.
The exact tax and penalty bill for Tiger Global depends on its profit from the deal and is not yet known. Tiger Global did not respond to the BBC's questions.
This ruling raises concerns around future sales of investments for private equity funds or foreign direct investment routed through the island nation, particularly as India had long attracted foreign capital through favorable tax treaties with countries like Mauritius, Singapore, and the Netherlands.
Between 2000 and March 2025, Mauritius accounted for about $180bn (£133.9bn), nearly a quarter of all foreign direct investment into India, according to official figures. But with the recent changes, foreign investors may reassess their strategies as they weigh compliance with evolving tax laws against the potential returns on investment.
On 15 January, India's top court ruled that US investment firm Tiger Global must pay tax in India on the sale of its stake in e-commerce giant Flipkart to Walmart in 2018. The 152-page judgment overturned a 2024 Delhi high court decision that had allowed Tiger Global to claim tax relief under a decades-old India–Mauritius tax treaty.
The ruling, which could reshape how foreign investors exit their Indian investments, sets out a tougher interpretation of tax treaties. It allows authorities to deny treaty benefits if offshore investment structures are deemed to be sham entities with little commercial substance - even when investors hold valid documentation.
The judgement gives India wide powers to scrutinise any offshore corporate deal. But experts warn it could unsettle international investors and hurt business sentiment.
Some lawyers who wanted to remain unnamed told the BBC that their clients were worried that the ruling could lead to scrutiny of old transactions and share sales long thought to be settled.
The judgment opens up unjustifiable windows for tax authorities to scrutinise any offshore corporate deal, says Ketan Dalal, managing director of Katalyst Advisors. This can undermine policy stability and certainty, which are critical for doing business in India.
The Tiger Global case dates to 2018, when US retail giant Walmart bought Flipkart in one of the largest e-commerce deals of the time. Tiger Global, which invested through three Mauritius-based entities, sold its entire 17% stake for about $1.6bn (£1.19bn).
Tiger Global argued that its gains were shielded from Indian tax because the investment was held through entities in Mauritius, invoking a long-standing tax treaty between the two countries. It relied on tax residency certificates issued by Mauritius, which had traditionally been accepted as sufficient proof to claim treaty benefits.
However, Indian tax authorities rejected the claim and argued that the Mauritian firms served as conduits and were used only to avoid taxes, with no real business purpose.
The Supreme Court has sided with Indian officials, ruling that tax certificates alone do not guarantee treaty benefits and that the investment structure lacked real commercial substance. It held that foreign investors cannot rely on complex offshore set-ups when those entities don't carry out genuine business activities of their own.
The exact tax and penalty bill for Tiger Global depends on its profit from the deal and is not yet known. Tiger Global did not respond to the BBC's questions.
This ruling raises concerns around future sales of investments for private equity funds or foreign direct investment routed through the island nation, particularly as India had long attracted foreign capital through favorable tax treaties with countries like Mauritius, Singapore, and the Netherlands.
Between 2000 and March 2025, Mauritius accounted for about $180bn (£133.9bn), nearly a quarter of all foreign direct investment into India, according to official figures. But with the recent changes, foreign investors may reassess their strategies as they weigh compliance with evolving tax laws against the potential returns on investment.
