Hedge fund Tiger Global will have to pay taxes on its $1.6 billion stake sale in Indian e-commerce firm Flipkart to U.S. retail giant Walmart (WMT).
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Tax Avoidance Scheme
A court ruling in New Delhi declared the 2018 sale by Tiger Global’s Mauritius-based entities to Walmart as part of its $16 billion Flipkart acquisition was designed as an “impermissible tax avoidance arrangement.”
Supreme Court Judge R. Mahadevan said Tiger Global could not claim an exemption from paying tax on the profit from the stake sale.
The exact amount of tax and penalties Tiger Global now owes, which would depend on how much profit it made from the deal, is not known. Tiger Global can ask the Supreme Court to review its verdict, but reportedly such requests have a low success rate.
A Watershed Moment
“The decision marks a watershed moment in the Indian taxation paradigm,” Tarun Jain, a lawyer specializing in taxation at the Supreme Court, told Reuters.
Tiger Global had argued that profits from the stake it sold were exempted from taxes under the India-Mauritius tax treaty.
Indian tax authorities, however, said Tiger Global’s Mauritius units served merely as a conduit for the U.S. parent company, and it had improperly used the treaty to avoid paying tax. Tiger Global denied that.
Walmart has not previously commented on the case. It invested in Flipkart to benefit from India’s surging e-commerce market. India, though not as big as other territories like Mexico, is a growth market for Walmart. Last year it said that Flipkart is on a path to profitability with quick commerce, despite concerns over its growth, accounting for 20% of the e-commerce market.
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