The Authority for Advance Rulings (AAR) has squarely rejected the application by private equity firm Tiger Global for nil withholding tax on capital gains from its stake sale in e-commerce company Flipkart to US retail giant Walmart in 2018, according to the details of the filing sourced from Taxsutra. Stakes of Mauritius-based Tiger Global International II, III, and IV Holdings (parts of the US-based Tiger Global) in Flipkart Singapore (the parent company of Flipkart) was sold to Luxembourg-based Fit Holdings for more than Rs 14,500 crore in 2018. The investor had then sought an AAR ruling after the rejection of its nil withholding application under section 197 by the income tax department for capital gains tax exemption.
AAR noted that the “transaction was designed prima facie for the avoidance of tax” and hence there is an “inescapable conclusion” that the Tiger Global entities in Mauritius were set up to derive benefit under India-Mauritius Double Taxation Avoidance Agreement (DTAA). Therefore, AAR concluded that “head and brain” of these companies were based in the US and not in Mauritius.