Analysis of decision by the Delhi High Court in Tiger Global International III Holdings v. AAR, which reinforces the legal status of Tax Residency Certificates (TRCs) issued by Mauritius under the Double Taxation Avoidance Agreement (DTAA) between India and Mauritius. Key points include:
Background: Tiger Global, a Mauritian tax resident, held shares in Flipkart Singapore. When it sold these shares, the Indian tax authorities rejected its request for exemption from capital gains tax, citing potential tax avoidance.
Court Decision: The Delhi HC ruled in favor of Tiger Global, affirming the validity of the TRC and exempting the company from Indian capital gains tax. The court emphasized that establishing companies in "tax-friendly" jurisdictions like Mauritius does not automatically imply tax evasion or treaty abuse. The decision followed principles from previous rulings in Azadi Bachao Andolan and Vodafone.
Significance: The ruling addresses important aspects like beneficial ownership, treaty shopping, Limitation of Benefits (LOB) provisions, and the role of parent-subsidiary relationships. It asserts that subsidiaries and investment vehicles, even if based in favorable tax jurisdictions, are not automatically considered devices for tax avoidance.
Takeaways: The decision ensures that entities holding TRCs and operating from countries like Mauritius can claim treaty benefits if they meet the required conditions, even if future amendments (like Principal Purpose Test clauses) are made to the India-Mauritius DTAA to curb potential treaty shopping.
This judgment provides relief for foreign investors, reinforcing the sanctity of TRCs and the protection of investments made before April 1, 2017.
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