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Following the Supreme Court’s ruling against Tiger Global in the capital gains tax case pertaining to the investor’s stake sale in Flipkart, Startup Policy Forum (SPF) has called on the Centre to adopt a balanced and broader interpretation of tax treaties and reassure investors.
The SPF, which represents over 60 startups like Ather Energy, CRED, Razorpay, among others, wrote to the finance ministry saying that while the SC ruling is legally grounded in the specific facts of the case, it risks sending mixed signals to foreign investors and may have longer-term implications for India’s startup ecosystem, which has been a significant beneficiary of foreign capital.
The development was first reported by Reuters.
For context, the apex court said last week that Tiger Global was liable to pay tax in India on its $1.6 Bn sale of Flipkart shares to Walmart in 2018 via its Mauritius entity.
The US-based investment firm had used Mauritius-based holding companies to benefit from India-Mauritius Double Taxation Avoidance Agreement (DTAA), as per which capital gains arising from the sale of shares of Indian companies were historically exempt from tax in India.
However, the SC sided with the Indian tax authorities which argued that Mauritius-based entities were “fronts” for investments to avoid paying taxes, and the ultimate beneficiary of Tiger Global’s investment was the US-based parent company.
“Foreign investors place a premium on certainty and predictability in tax regimes. To date, foreign capital has been a key driver of India’s startup growth story… in the interest of sustaining investor confidence, we urge the government to issue clarifications on the scope of the ruling, particularly with respect to retrospective application and guidance for future investment structures,” SPF founder Shweta Rajpal Kohli said.
The Forum, in its recommendations to the finance ministry, said that the tax department should issue clarificatory circulars confirming non-retroactive application of the General Anti-Avoidance Rules (GAAR) to bonafide pre-April 2017 holdings even if the sale occurs after April 2017.
This, it said, would help prevent the reopening of settled cases and provide investors with much-needed certainty.
(The story will be updated soon)
The post Tiger Global Tax Case: SPF Seeks Tax Certainty, Predictability For Investors appeared first on Inc42 Media.
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