Tiger Global loses round 1 in Flipkart deal tax case
AAR turns down nil withholding tax plea; I-T sought ~886 crore
The Authority for Advance Rulings (AAR) has rejected an application of three Mauritius-based companies, part of Us-based hedge fund Tiger Global Management, to avail of nil withholding tax on capital gains arising out of the $16-billion WalmartFlipkart deal, struck in May 2018.
Tiger Global was one of the prominent shareholders in e-commerce major Flipkart, founded by Sachin Bansal and Binny Bansal in 2007.
Mauritius-based Tiger Global International (II, III, IV) Holdings had sold their stake in Flipkart Singapore in 2018 to Luxembourgbased Fit Holdings for over ~14,500 crore. They sought an AAR ruling after the tax authorities rejected their demand for nil withholding tax under Section 197. The stake sale was undertaken as part of the multibillion- dollar transaction to offload stake in Flipkart to US retail giant Walmart.
The AAR refused the plea on the ground that prima facie the share sale transactions by the applicants were designed for avoidance of tax and to avail of the benefits of the India-mauritius double taxation avoidance agreement (DTAA).
The judicial body observed that “the head and brain of the companies and consequently their control and management was situated not in Mauritius but outside in US”.
Under the Income-tax Act, a foreign company or the Indian taxpayer can approach the AAR and obtain a ruling on the taxability of the proposed transaction in India.
The AAR ruling said there was no foreign direct investment (FDI) made by the applicant companies in India and, therefore, there could not be any question of participation in investment. Since the applicants had made investment in shares of Flipkart, a Singapore company, the immediate investment destination was Singapore and not India, it added.
The AAR further said the applicants failed on other yardsticks, viz. the period of business operation in India, the generation of tax revenue in India, timing of exit, and continuity of business on such exit. "In the absence of any strategic FDI in India, there was neither any business operation in India nor they ever generated any taxable revenue in India. So one can only conclude that the arrangement was a pre-ordained transaction which was created for tax avoidance purpose,” it noted.