In 2018, 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.
The US-based PE firm can now approach the high court and appeal against the AAR’s judgement, or the I-T Appellate Tribunal, said the report.
It is to be noted that the AAR report does not mention Tiger Global, though it does specify ₹14,500 crore exit.
According to Economics Times, while most of Tiger Global shares in Flipkart were from its Mauritius entity, it also held stake from its Singapore-based entity. Meanwhile, the first backer of Flipkart – Venture Capital firm Accel (formerly Accel Partners) too had invested in Flipkart through its Mauritius subsidiary.
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.
In 2018, Walmart had bought 77% stake in Flipkart in a $16 billion deal. Tiger Global, one of the earliest backers of Flipkart and held a 22% stake, had sold 17% stake in the company for ₹14,500 crore.
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.