Govt treads with caution as it plans to reopen tax case against Tiger Global

The government will revive proceedings in the tax assessment case against three Mauritius-based entities. Tiger Global quoted an official from the Central Board of Direct Taxes (CBDT), one of the people quoted earlier, as saying:

However, if assessors appeal the two-member panel’s decision, the resumed tax proceedings will automatically be postponed pending the outcome of the judicial process, the second government official said. Both officials spoke on condition of anonymity because the information has not yet been made public.

The move is a sign of the Narendra Modi administration’s patient approach to complex and sensitive tax issues, deterring field officials from taking immediate action at a time when India is facing headwinds in global trade. More is emerging as tax experts raise concerns that the apex court’s decision could prompt the tax department to scrutinize other transactions of the Tiger Global group and other companies with similar arrangements.

Modi government aims for this Making the economy more competitive and productive with an improved business environment that can attract investors. The group has taken many steps to provide tax certainty to global investors, including agreements with multinational companies to avoid strict scrutiny of cross-border transactions between its companies that are subject to travellers.

Emailed queries seeking comment to CBDT and Tiger Global on Friday remained unanswered at the time of publication.

The first official mentioned above said, “The case cannot be asked to disappear. The right to object is a legal right that taxpayers can exercise. Taxpayers have the right to object to a decision and exhaust the available appeal channels for the matter to be decided.” “The (Income Tax) Department respects this right and therefore has to wait for the final outcome of the judicial process. This is a function of due process and not overreach or delay on the part of the department.”

The official emphasized that not all tax disputes can be labeled as overreach or ‘tax terrorism’.

“Many of them arise from genuine differences of interpretation in evolving areas of law. Final finality will come only when the highest court resolves the matter. Until then, both the taxpayer and the tax administration will remain committed to the process,” the official said.

But experts warned that the path ahead for Tiger Global is primarily procedural.

“The only immediate remedy for this under Indian law appears to be to file a review petition before the Supreme Court. When it comes to international arbitration, India’s stance has become significantly more restrictive in recent years,” said Amit Maheshwari, managing partner of AKM Global, a tax and advisory firm. “Given that this decision concerns India’s sovereign taxing powers and involves interpretation of domestic tax law and the India-Mauritius treaty, the scope of any international arbitration also appears extremely limited.”

Tiger Global’s The stake sale in Flipkart, which was founded in Singapore but derives value from investments in India, has been the subject of intense tax litigation and is a key example of India’s alleged tax avoidance efforts.

At the heart of this is the renegotiated Double Tax Avoidance Agreement (DTAA) with Singapore. Before the change, which came into effect on 1 April 2017, Mauritius had the right to levy capital gains tax on the sale of companies with assets in India, but this has led to a situation where such transactions are not taxed in either country. Arguing that this was not the intention of the agreement, India changed the rules and gave itself tax rights while grandfathering previous investments. subject to riders.

Tiger Global’s claim was that its sale of a majority stake in Flipkart to Walmart Inc. for $16 billion in 2018 was not taxable under the terms of the agreement. The exit of three Tiger Global Mauritius entities from Flipkart resulted in significant capital gains and the total consideration received was ₹14,500 crore, the official announced.

The first official cited above said that as a result of the SC decision, the assessment proceedings for the assessment year 2019-20, which had remained in essence, will now be revived.

“The assessment officer will now continue to complete assessments in line with the Supreme Court’s decision. ₹967.52 crore currently retained will now be handled as part of the assessment and resulting claim proceedings, the official said. This will be subject to the appeal process.

From this total sales price, Tiger Global International II Holdings (Mauritius) obtained approx. ₹13,122 crore, while TGI III Holdings (Mauritius) received approx. ₹1,259 crore and TGI IV Holdings (Mauritius) received approx. ₹58 crore. These incomes formed the basis of capital gains sought to be taxed by the Indian tax authorities.

An official handling the matter had not allowed ‘zero withholding’ tax but allowed a reduced rate. Accordingly, companies deducted taxes approximately at source. ₹967.52 crore.

Tax withholding is not the final determination of tax liability, the official said. “This was an interim measure taken in a situation where taxation was disputed and could not be definitively decided at the remittance stage. The refund was claimed for approx.” ₹967.52 crore currently retained under section 241A of the Income Tax Act will now be handled as part of the assessment and resulting claim proceedings, the official said.