Startups Seek Tax Clarity After SC Ruling Against Tiger Global
Industry group warns broad application of the Flipkart case could unsettle foreign investors and legacy investment structures
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The Startup Policy Forum (SPF), a group representing about 60 startups, has written to the finance ministry seeking clarity on how India will apply a recent Supreme Court ruling that denied Tiger Global tax treaty benefits on gains from its Flipkart exit, warning that the judgment could unsettle investor confidence if applied broadly to older structures.
The letter, dated 20 January, asks the government to spell out that the ruling should not be used to reopen or aggressively scrutinize legacy investments and to provide guidance on how tax authorities will approach future cross-border structures.
The Supreme Court decision, delivered 15 January, arose from Tiger Global’s 2018 sale of part of its stake in Flipkart as part of Walmart’s acquisition and addressed whether Mauritius-based entities used in the structure could claim benefits under the India-Mauritius Double Tax Avoidance Agreement (DTAA).
In its judgment, the apex court backed the tax department’s position that the Mauritius entities functioned as conduits and lacked sufficient commercial substance, bringing the arrangement within the scope of India’s general anti-avoidance rules (GAAR).
The court also said a Tax Residency Certificate (TRC), by itself, does not prevent authorities from examining whether an arrangement is impermissibly tax-avoidant.
SPF President and CEO Shweta Rajpal Kohli urged the government to issue clarificatory guidance, particularly on questions of non-retroactivity and treatment of bona fide holdings that investors consider “grandfathered” under the revised India-Mauritius treaty framework.
She warned the judgment could “send mixed signals” to foreign investors and have “longer-term implications” for the startup ecosystem.
Meanwhile, India’s additional solicitor general N. Venkataraman dismissed the startup group’s concern as unwarranted, reflecting the government’s view that the ruling is anchored in the facts of the case rather than a blanket indictment of offshore structures, Reuters reported.
For the startup ecosystem, the immediate issue is not the legal principle that sham arrangements can be denied treaty benfits, but the practical question of how predictably tax authorities will apply that principle to legacy investments and genuine commercial holding structures.
The Supreme Court’s reasoning emphasized substance and purpose, including the possibility of invoking GAAR to override treaty benefits in appropriate cases.
