Tiger Global Case: What Foreign Investors Must Re-think About Treaty Structures
Introduction
The recent judgment of the Supreme Court of India in the Tiger Global matter marks a decisive shift in India’s international tax jurisprudence. The ruling fundamentally alters how tax treaty benefits, particularly under the India–Mauritius Double Taxation Avoidance Agreement (DTAA), are to be interpreted and applied.
For foreign investors—especially private equity funds, venture capital firms, and multinational investment vehicles—the decision is not merely case-specific. It is a structural warning: treaty benefits are no longer a matter of form, certificates, or historical comfort. They are now substance-dependent, purpose-tested, and anti-avoidance driven.
This article analyses the ruling from a legal and policy perspective and outlines what foreign investors must re-think, re-design, and re-document in their treaty-based investment structures.
Factual Background in Brief
The case arose from the sale of shares during Walmart’s acquisition of Flipkart. Investment entities linked to Tiger Global, incorporated in Mauritius, claimed exemption from capital gains tax in India under Article 13 of the India–Mauritius DTAA.
The investors relied on:
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Grandfathering provisions applicable to pre-1 April 2017 investments
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Valid Tax Residency Certificates (TRCs) issued by Mauritian authorities
Indian tax authorities challenged the claim, alleging that the Mauritius entities were conduit structures, lacking commercial substance, created primarily to access treaty benefits.
Judicial Journey
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Authority for Advance Rulings (AAR): Denied treaty benefits, citing lack of substance
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Delhi High Court: Allowed treaty claim, treating TRC as sufficient proof
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Supreme Court: Reversed the High Court, upheld substance-based denial
The Supreme Court’s ruling decisively re-asserted the anti-avoidance lens in treaty interpretation.
Key Legal Findings and Analysis
1. Tax Residency Certificate Is Necessary—but Not Conclusive
Historically, Indian jurisprudence (notably Azadi Bachao Andolan) accorded significant weight to TRCs. The Tiger Global judgment recalibrates this position.
The Court held that:
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A TRC cannot act as a jurisdiction-ousting document
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It does not prevent tax authorities from examining economic substance, control, and purpose
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Treaty entitlement must be earned, not assumed
2. Substance Over Form Is Now the Dominant Test
The Court examined:
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Where strategic and commercial decisions were taken
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Whether the Mauritius entities had independent business operations
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Whether they bore real economic risk
Finding that the “head and brain” of the entities lay outside Mauritius, the Court concluded that the structures lacked commercial substance.
What this means for investors:
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Board meetings, decision-making authority, fund control, and risk assumption must genuinely exist in the treaty jurisdiction
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Paper presence will not suffice
3. Treaty Benefits Can Be Denied Using Domestic Anti-Avoidance Law
A crucial legal takeaway is the Court’s affirmation that:
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Domestic anti-avoidance provisions (including Chapter X-A / GAAR principles)
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Can override treaty benefits under Section 90(2A)
Even though the investment pre-dated GAAR’s formal implementation, the Court applied judicial anti-avoidance principles (JAAR) to deny benefits.
Significance:
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The ruling weakens the argument that “pre-GAAR investments are immune”
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Anti-avoidance is treated as a foundational principle, not a temporal rule
4. Grandfathering Is Not Absolute
Foreign investors often assume that grandfathering clauses provide complete protection. The Court clarified that:
Grandfathering protects genuine investments—not artificial arrangements designed solely to obtain tax benefits.
If an arrangement is found to be abusive, grandfathering will not rescue it.
What Foreign Investors Must Re-think
1. Jurisdiction Selection Strategy
Mauritius (and similar jurisdictions) can no longer be used merely for:
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Tax neutrality
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Treaty shopping
Investors must re-evaluate:
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Why a jurisdiction is chosen
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Whether it aligns with real business operations
2. Fund and Holding Company Substance
Foreign investors must ensure:
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Real governance structures
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Independent directors with decision-making authority
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Local teams, compliance, and operational expenditure
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Evidence of commercial rationale beyond tax
3. Documentation and Evidentiary Readiness
Future treaty claims will depend heavily on:
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Contemporaneous documentation
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Board minutes, investment committee records
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Risk allocation and control evidence
Litigation preparedness is now part of structuring.
4. Exit Planning and Tax Risk Assessment
Exit transactions—especially in India—must now factor in:
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GAAR risk
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Treaty denial exposure
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Long-term litigation cost
Tax certainty must be assessed before entry, not at exit.
Policy and Investment Climate Impact
The ruling strengthens India’s:
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Anti-treaty abuse stance
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Sovereign taxing rights
At the same time, it raises concerns about:
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Retrospective uncertainty
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Investor confidence in treaty stability
The onus now lies on policymakers to balance tax enforcement with predictability, and on investors to ensure robust, substance-backed structures.
Conclusion
The Tiger Global judgment is a watershed moment in Indian international tax law. It signals the end of automatic treaty entitlement and the rise of purpose-based, substance-driven scrutiny.
For foreign investors, the message is unequivocal:
Treaties protect genuine investments—not artificial structures.
Those who fail to re-think their treaty strategies risk not just tax exposure, but prolonged litigation and reputational consequences in one of the world’s most important investment markets.
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