A recent Delhi High Court ruling in favor of Tiger Global Management has sent a wave of optimism through Mauritius’ financial services sector, solidifying its position as a key investment hub for India. The court’s decision to grant Tiger Global exemption from capital gains tax on its sale of Flipkart shares, a transaction completed in 2018, has set a powerful precedent, particularly for entities that utilize Mauritius as a conduit for investment in India and beyond.
The ruling centers on the pre-2017 India-Mauritius Double Tax Avoidance Agreement (DTAA), which had previously exempted Mauritius-based entities from capital gains taxes in India. This provision was subsequently revoked in April 2017. However, the court’s decision clarifies that entities with pre-2017 investments from Mauritius are grandfathered under the new DTAA, meaning they remain exempt from taxation.
The Tiger Global case was significant because the Authority for Advance Rulings (AAR) had initially denied the tax exemption, arguing that the investment had been routed through Mauritius solely for tax advantages and lacked substantial business operations there. This ruling was overturned by the High Court, underscoring the importance of documentation issued by authorities in other jurisdictions. The court recognized the validity of tax residency certificates issued by Mauritian authorities, which serve as proof for availing DTAA benefits.
The favorable judgment has delivered a reassuring message to both Indian and Mauritian authorities, emphasizing that documentation from foreign jurisdictions should not be subject to arbitrary questioning. It also addresses concerns about using Mauritius for future investments in India, providing confidence to potential investors.
Beyond the capital gains tax exemption, Mauritius continues to offer attractive taxation rates on income from interest, dividends, and derivatives, further enhancing its appeal as a strategic investment destination.
Samade Jhummun, CEO of Mauritius Finance, the government-backed body representing the country’s financial services sector, highlighted the positive impact of the ruling: “It’s a landmark case for entities using Mauritius for investing in India and elsewhere because it sets a precedent in terms of a lot of questions that have been raised.” He emphasized that the ruling sends a clear message to investors, providing clarity on how legal disputes are addressed and interpreted.
Ketan Dalal, Managing Director of Katalyst Advisors, echoed this sentiment, calling the Delhi High Court judgment “extremely well-reasoned.” He highlighted the detailed reasoning presented by the court in upholding the applicability of the India-Mauritius tax treaty exemption for shares acquired before April 1, 2017. Dalal added that even in cases where the substance of a Mauritius entity might be less robust than in the Tiger Global case, capital gains should still be exempt from taxation based on previous directives issued by the Central Board of Direct Taxes in 1992 and 2000.
The Delhi High Court’s decision has significantly bolstered Mauritius’ standing as a viable and attractive investment platform for India, reinforcing the benefits of its existing tax agreements and providing greater legal certainty for investors seeking to capitalize on India’s burgeoning economy.
