The Authority for Advance Rulings (AAR) has rejected the application by PE firm Tiger Global to avail zero withholding tax on capital gains from the deal.

Tiger Global sold its Flipkart stake to Walmart in 2018 to avoid tax rules Tax body
Atom Flipkart Deal Thursday, June 04, 2020 - 17:32

Two years after Tiger Global sold its stake in Flipkart to Walmart, the private equity firm has been hauled up for failure to pay tax on profit arising out of the sale. Further, the Authority for Advance Rulings (AAR) has rejected the application by Tiger Global to avail zero withholding tax on capital gains from the deal. 

Walmart had bought 77% stake in Flipkart in 2018 in a $16 billion deal. 

The AAR noted that Tiger Global had set up a Mauritius entity only to derive benefits from the deal and avoid tax using the India-Mauritius Double Tax Avoidance Agreement (DTAA), and that the “head and brain” of the company was still based in the US and not in Mauritius. 

Tiger Global was among the earliest investors in Flipkart and held a 22% stake in the company, out of which it sold 17% for Rs 14,500 crore. Last year, Flipkart’s co-founder Binny Bansal had sold his shares in the company worth $14 million to two Tiger Global funds – Internet Fund III Pte Ltd and Tiger Global Eight Holdings.

According to the Economic Times, stakes of Mauritius-based Tiger Global International II, III, and IV Holdings (parts of the US-based Tiger Global) in Flipkart Singapore (the parent company of Flipkart) were sold to Luxembourg-based Fit Holdings for over Rs 14,500 crore in 2018. 

Tiger Global maintained that since the shares of the Singapore company derived their value primarily from assets located in India, it can derive benefits under Article 13 (4) of India – Mauritius Treaty. However, AAR ruled that the shares transferred were not of an Indian company and therefore the applicant is not eligible for the benefits.

Tiger Global can now appeal against the AAR’s judgment by approaching the I-T Appellate Tribunal or the high court. 

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