Tax treaty claims face stricter tests after Tiger Global ruling; family offices may come under watch, says expert

The Supreme Court’s January 15 ruling denying tax relief to Tiger Global in its Flipkart exit case could have far-reaching implications for the use of tax treaties by foreign investors, venture capital funds, and high-net-worth individuals, with experts saying the judgment strengthens the role of anti-avoidance rules and commercial substance tests across all cross-border structures.

The court refused treaty protection on capital gains arising from Tiger Global’s 2018 sale of its Flipkart stake to Walmart, holding that benefits under the India–Mauritius tax treaty cannot be granted automatically if the investment structure lacks real commercial substance. A bench of Justices J.B. Pardiwala and R. Mahadevan set aside the Delhi High Court order that had earlier ruled in favour of the investor, saying the Mauritius-based entity did not demonstrate sufficient business purpose to claim treaty protection or grandfathering benefits.

Tax experts say the ruling goes beyond the Mauritius treaty and could affect claims under several other double taxation avoidance agreements (DTAAs).

Vishal Gada, Founder and CEO at Aurtus Consulting LLP, said the principles laid down by the Supreme Court are likely to apply across treaties.
“While the ruling arose in the context of the India–Mauritius tax treaty, the principles around treaty abuse and the role of the General Anti-Avoidance Rules (GAAR) should apply to all Indian tax treaties. This could influence how tax authorities evaluate claims under other treaties as well, including the India-UAE treaty,” he said.

Aurtus is a full-service tax firm offering direct and indirect tax, transaction tax  and regulatory services.

TRC no longer enough, substance will matter

Under most tax treaties, investors must prove they are tax residents of the treaty country to claim benefits. In the past, the Supreme Court’s 2003 Azadi Bachao Andolan ruling treated the Tax Residency Certificate (TRC) as sufficient proof. However, the Tiger Global judgment marks a shift.

“Merely obtaining a TRC is not conclusive proof of entitlement to treaty benefits. If there is evidence that an entity has been interposed mainly to avoid tax, authorities may examine the commercial substance of the arrangement,” Gada said.

He added that the key difference from earlier rulings is the presence of GAAR, which allows authorities to deny treaty benefits where the main purpose of a structure is tax avoidance.

Impact on UAE, Singapore and offshore holding structures

Experts say the ruling could lead to closer scrutiny of structures routing investments through jurisdictions such as Mauritius, the UAE, and Singapore.

“The judgment reinforces that treaty benefits cannot be claimed where the arrangement lacks commercial substance. This may embolden tax authorities to examine claims under treaties, including the India-UAE DTAA, particularly where GAAR considerations arise,” Gada said.

Tax authorities may now look at factors such as management control, employees, assets, and real business activity in the foreign jurisdiction to determine whether a structure has genuine economic substance.

The ruling may also affect venture capital and private equity funds investing into India through offshore vehicles.
“Tax authorities may increasingly examine whether the investment vehicle has genuine commercial substance or has been set up mainly to access treaty benefits,” Gada said.

Implications for family offices, founders, and relocation to UAE

The judgment could also have indirect implications for family offices and individuals relocating to low-tax jurisdictions such as Dubai.

Gada said the ruling does not directly deal with relocation, but it signals that authorities may look beyond paperwork. “Individuals claiming treaty benefits after relocation may need to demonstrate genuine tax residency and economic substance in the new jurisdiction,” he said.

Family offices registered abroad but managed from India could also face scrutiny under place of effective management rules, which may result in them being treated as Indian tax residents.

“The Tiger Global ruling signals that Indian courts are increasingly willing to look beyond legal structures and examine the commercial substance of cross-border arrangements when treaty benefits are claimed,” Gada said.