Tiger Global now has to pay tax on profit from sale of Flipkart stake to Walmart in 2018

• The Authority of Advance Rulings (AAR) has just rejected Tiger Global’s application to avail zero withholding tax on the deal.
• The AAR has ruled that the company set up a Mauritius entity only for the benefits of the deal and that the ‘head and brain’ of the company was still based out of the US.
• 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.

In May 2018, Walmart bought Flipkart for a whopping $16 billion. Two years later, the tax on the deal is still an issue. The Authority of Advance Rulings (AAR) has just rejected Tiger Global’s application to avail zero withholding tax on the deal.

However, Tiger Global which used its Mauritius entity to avoid tax through the India-Mauritius Double Tax Avoidance Agreement (DTAA), is now in trouble. The AAR has ruled that the company set up a Mauritius entity only for the benefits of the deal and that the ‘head and brain’ of the company was still based out of the US.

While the AAR report does not mention Tiger Global, it does specify ₹14,500 crore exit. 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.

According to ET, while most of its shares were from its Mauritius entity, it also held stake from its Singapore-based entity. Meanwhile, the first backer of Flipkart – Accel too had invested in the company through its Mauritius subsidiary.

Flipkart’s investors who had taken an exit from the company during the Walmart deal were asking for lower tax deduction certificates. It enables non-residents to ensure that tax is deducted not on the sale price but on their taxable capital gains arising from such sale. Essentially, the tax on the seller will be lower.

The PE firm can now approach the high court and appeal against the AAR's judgement, or the I-T Appellate Tribunal, said the report.

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