Think of yourself as a global investor. You’ve spent years building a company, and now finally arrived at the holy grail: the Big Exit. The moment you sell your stake and collect your reward.
By then, everything appears to be in order. The investment is routed through a tax-friendly country like Mauritius. You hold a Tax Residency Certificate (TRC) – an official document confirming that your entity is a tax resident of that country and therefore eligible for treaty benefits.
In your mind, you are safe.
But then, the income tax department knocks. And instead of just checking your certificate, they start asking harder questions. Where was the office actually located? Who attended the board meetings? And who was making the decisions – from thousands of miles away?
This is exactly what happened to Tiger Global during its 2018 exit from Flipkart. And in January 2026, the Supreme Court of India delivered a verdict that changed the rules for every foreign investor operating in the country.
To understand why, we first need to look at how Tiger Global structured its investment.
Tiger Global’s paper fortress
Tiger Global Management is a massive New York-based investment firm known for backing some of the world’s largest technology companies. Over the years, it has been an active investor in Indian startups, including Flipkart.
In this case, Tiger Global didn’t invest directly in Flipkart India. Instead, they used a chain:
- Tiger Global (USA) managed the funds.
- They set up three companies in Mauritius.
- These Mauritius companies owned a company in Singapore.
- The Singapore company ultimately owned shares in Flipkart India.
When Walmart acquired Flipkart in 2018, Tiger Global exited the investment by selling its shares in the Singapore company.
They claimed that, as “residents” of Mauritius, they were protected from paying capital gains tax in India under the India–Mauritius Double Taxation Avoidance Agreement (DTAA).
To support this claim, Tiger Global relied on Tax Residency Certificates issued by Mauritius authorities.
That, however, was only part of the story.
Why did Tiger Global’s entity come under scrutiny?
For years, if you had a Tax Residency Certificate, it was like a golden ticket. The Indian government usually didn’t dig deeper.
This time, they did.
The ITD argued that the Mauritius companies were nothing more than shell entities – created solely to route investments and avoid Indian tax. They pointed out that the “head and brain” of these companies wasn’t in Mauritius at all. It sat squarely in the New York office belonging to Tiger Global’s founder.
And the Supreme Court agreed.
What makes an offshore company look legitimate?
The Supreme Court agreed with the tax authorities. They ruled that a TRC is just a piece of paper if there is no commercial substance behind the structure.
So what does “substance” mean in practice?
If you want treaty benefits, your offshore company must look like a real business. It needs:
- Local directors who actually make decisions and not just sign what they are told.
- A physical office and real administrative expenses in that country.
- A logical reason to exist other than “saving tax.”
So, if your company exists only to hold shares and pass money around, it’s highly vulnerable to being disregarded.
GAAR and its implications for investors
The court then turned to a different question altogether: can the tax department ignore a structure even if it technically follows a tax treaty?
This is where GAAR, or the General Anti-Avoidance Rule, comes in.
GAAR allows the tax department to disregard the structures that were created mainly to avoid tax, even if they appear legally valid on paper. Section 90(2A) of the Income Tax Act makes this clear. It gives GAAR the power to override tax treaty benefits. These treaties are meant to prevent double taxation, not to enable situations where tax is paid in neither country.
Tiger Global argued that GAAR should not apply because its investment was made before 1 April 2017, when GAAR came into effect. So, they should be protected or ‘grandfathered’ under the old rules.
The SC rejected this argument and made a chilling clarification that grandfathering protects genuine investments, not conduit or shell structures. What matters is not when the structure was created, but when the tax benefit is actually claimed. In this case, that happened at the 2018 exit, allowing GAAR to be applied.
Accordingly, if the government believes that your structure was designed primarily to avoid tax, it has the sovereign power to disregard treaty protections, ignore your claimed residency, and tax the transaction in India.
That power, the Court said, is not something India is willing to give up.
What does this ruling mean for investors?
If you are an investor or a business owner, this judgment isn’t just about Tiger Global. It signals that the “check-the-box” era of tax planning is over. Here’s what investors should take away:
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Ghost entities are risky: If your Mauritius or Singapore company has no people, no office and no local activity, it is likely to attract attention.
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The ‘Why’ matters as much as the structure: You must be able to explain the commercial purpose of your setup. “Because it’s tax-free” is no longer a defensible position.
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Reviewing the old investments: Don’t assume old investments are safe. The tax authorities are looking at your exit today, not just your entry years ago.
Investors should take this opportunity to review their offshore structures, especially older ones and assess them through the lens of substance, not just paperwork.