Global capital flows into India face a new layer of regulatory uncertainty following a decisive ruling by the Supreme Court concerning US investment firm Tiger Global. The judgment, which mandates Tiger Global pay domestic taxes on its 2018 exit from e-commerce giant Flipkart, effectively empowers Indian tax authorities to look beyond formal documentation when assessing cross-border investment structures.
The 152-page decision overturned a prior High Court relief, interpreting decades-old India–Mauritius tax treaties with a stricter lens. Critically, the court ruled that Mauritius-based entities used for the investment lacked genuine commercial substance, thereby denying treaty benefits—even when investors possessed valid residency certificates. This sets a significantly tougher precedent for assessing offshore corporate deals.
This development directly impacts the bedrock of foreign direct investment (FDI) into India, which historically routed substantial capital—nearly a quarter of FDI since 2000—through Mauritius, drawn by favorable tax treaties designed to prevent double taxation. Experts warn that the ruling may undermine established policy stability, a crucial factor for attracting long-term international capital.
Lawyers advising clients on ongoing and past sales expressed concern that previously settled transactions, particularly those predating 2017 tax law amendments, are now vulnerable to renewed scrutiny. This reopening of settled positions challenges sovereign commitments regarding investment routes that were once deemed secure, raising questions about the credibility of India's tax regime.
The case originated from Walmart’s 2018 acquisition of Flipkart, where Tiger Global sold its 17% stake for approximately $1.6 billion. Tiger Global had argued that its pre-2017 investment structure shielded gains based on the Mauritius treaty. Tax authorities countered that the Mauritian entities functioned merely as conduits for tax avoidance.
The Supreme Court sided with the revenue service, asserting the sovereign right of a nation to tax income generated within its borders, stating that treaty dilution threatens long-term national interests. While a 2024 protocol amending the India-Mauritius treaty aims to curb shell companies, this ruling applies retroactively to structures based on prior legal understanding.
Analysts suggest that the ruling necessitates a recalculation of risk premiums for future exits and could compel private equity funds to drastically increase due diligence on pre-2017 assets. This heightened regulatory risk arrives at a delicate time, as global capital flows are already being recalibrated amid broader geopolitical tensions.
This legal precedent, while strengthening the government's fiscal position, risks dampening investor sentiment, forcing a strategic reassessment of investment routes into one of the world's fastest-growing major economies. (Source: Based on reporting from the BBC).