Tiger Global Case: What the Supreme Court Ruling Means for FPI Flows into India

The recent Supreme Court ruling involving Tiger Global has reopened an old but important debate in India’s tax and investment landscape. At its core, the case is not just about one transaction or one foreign investor. It raises broader questions around tax certainty, treaty interpretation, and how global investors perceive India as a destination for capital.

While the ruling has legal clarity, its implications for Foreign Portfolio Investor (FPI) flows will depend as much on policy messaging as on the judgement itself.

What the Supreme Court Ruling Was About

In an important decision, the Supreme Court overturned an earlier ruling of the Delhi High Court that had gone in favour of Tiger Global. The case concerned whether Tiger Global was entitled to claim capital gains tax exemption under the India–Mauritius tax treaty on the sale of its stake in Flipkart.

Although the Supreme Court has settled the legal interpretation for now, the broader conversation around taxation of foreign investors is far from over. The ruling has brought renewed focus on how India applies the principle of “substance over form” in cross-border transactions.

Background to the Flipkart–Tiger Global Transaction

The case traces back to 2018, when Walmart acquired a majority stake in Flipkart. As part of this transaction, Tiger Global, one of Flipkart’s early investors, sold shares worth approximately $1.6 billion.

Before completing the sale, Tiger Global sought permission from Indian tax authorities to receive the proceeds without deduction of tax at source. This request was denied. Subsequently:

• Indian tax authorities ruled against Tiger Global
• The Authority for Advance Rulings (AAR) held that the Mauritius treaty could not be used purely on form
• The Delhi High Court later ruled in Tiger Global’s favour

The Supreme Court has now overturned the Delhi High Court decision, restoring the earlier position taken by tax authorities.

Form Versus Substance: The Core Legal Debate

The Tiger Global case is part of a long-running debate in Indian tax jurisprudence. The central question is whether tax benefits should be determined purely by legal structure or by the economic reality of a transaction.

India has seen this debate earlier in high-profile cases such as Vodafone and Cairn India. In response to concerns about treaty misuse, India amended its tax rules in 2016, particularly with respect to the India–Mauritius tax treaty.

Post-2016, the rules clearly state that:

• Treaty benefits require economic substance
• Merely routing investments through a low-tax jurisdiction is not sufficient
• Shell or front entities without real commercial purpose do not qualify for exemptions

In the Tiger Global case, the Supreme Court concluded that the Mauritius entity lacked sufficient substance and existed primarily to avoid capital gains tax.

Why the Supreme Court Rejected the TRC Argument

One of the key arguments made by Tiger Global, and echoed by global investors, was the presence of a valid Tax Residency Certificate (TRC) from Mauritius. Historically, a TRC was considered strong evidence for claiming treaty benefits.

The Supreme Court, however, took a stricter view.

The court held that:

• A TRC alone does not establish the genuineness of a transaction
• Substance and economic justification must be demonstrated
• In this case, the Mauritius entity functioned as a front rather than an operating investment vehicle

This interpretation reinforces the post-2016 framework, where form is no longer enough without underlying substance.

How Global Investors Are Viewing the Ruling

From a global investor’s perspective, the ruling raises practical and economic concerns.

First, many foreign investors argue that they already pay taxes in their home jurisdictions. Taxing the same gains in India, they say, increases the risk of double taxation, which can materially impact deal economics.

Second, there is concern around retrospective interpretation, even if the law itself is not retrospective. Investors worry that treaty structures once considered acceptable may now be questioned years later.

Third, venture capital funds, private equity firms, and FPIs caution that uncertainty around exit taxation can:

• Raise the cost of capital
• Reduce post-tax returns
• Make India less competitive compared to other emerging markets

While these concerns are understandable, they coexist with India’s sovereign right to protect its tax base.

Will This Ruling Actually Impact FPI Flows?

The immediate fear is that such rulings could trigger large FPI outflows. However, historical evidence suggests the impact may be more limited.

• FPI flows have been negative in three of the last four years, driven more by global interest rates and risk appetite than by domestic tax policy
• The introduction of Securities Transaction Tax (STT) did not materially deter foreign participation over the long term
• India continues to attract capital due to market depth, growth prospects, and domestic demand

This suggests that while the ruling may affect sentiment at the margin, it is unlikely to cause a sustained structural decline in FPI flows on its own.

The Bigger Issue: Policy Messaging and Perception

Where the ruling does raise a red flag is in the area of policy communication.

On one hand, the government, through Union Budget announcements, consistently signals its intent to attract foreign capital and position India as an investor-friendly destination. On the other hand, high-profile tax disputes and strict judicial interpretations can appear contradictory to global investors.

The issue is not whether substance should prevail over form. On principle, that is widely accepted. The challenge lies in:

• Predictability of enforcement
• Consistency between policy intent and execution
• Clear communication to global investors

In global capital markets, perception matters almost as much as legal correctness.

Conclusion

The Supreme Court’s ruling in the Tiger Global case is legally consistent with India’s post-2016 tax framework. It reinforces the principle that treaty benefits require genuine economic substance and cannot be claimed through shell structures.

However, the long-term impact on foreign capital flows will depend less on this single judgement and more on how India aligns its legal enforcement with its broader investment narrative. A synchronized message that balances tax integrity with investor confidence is essential.

Key Takeaways

• The Supreme Court overturned the Delhi High Court ruling in favour of Tiger Global
• The case relates to a $1.6 billion stake sale during Walmart’s acquisition of Flipkart in 2018
• The ruling reinforces the “substance over form” principle introduced in 2016
• A Tax Residency Certificate alone is no longer sufficient to claim treaty benefits
• FPI flow impact may be limited, based on past experience
• Clear and consistent policy messaging is critical for investor confidence

Disclaimer: This article is for general information and educational purposes only. It does not constitute legal, tax, or investment advice. Tax outcomes depend on specific facts and applicable law. Please consult a qualified professional for advice tailored to your situation.