Supreme Court's Tiger Global verdict triggers tax probe into treaty benefits claimed by overseas PE, VC funds

The funds selected for scrutiny are those that have either directly or indirectly exited investments in India and did not pay tax on the gains by relying on India's tax treaties with Mauritius and Singapore

• Tax dept issues notices to seven foreign funds post Tiger Global ruling
• Scrutiny focuses on Mauritius and Singapore entities used for India investments
• Funds must disclose sources, directors, owners, and operational details

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The tax department has stepped up scrutiny of overseas investors following the Supreme Court's ruling that denied treaty benefits to US investment firm Tiger Global, an Economic Times report said on Wednesday. Over the past two weeks, notices have been issued to at least seven foreign venture capital and private equity funds.

The Economic Times said the Income Tax (I-T) department has sought extensive information from these funds to assess the "substance" of their entities in Mauritius and Singapore - jurisdictions commonly used by foreign investors to route investments into India. Some of the communications sent by the department specifically refer to the Supreme Court's decision in the Tiger Global case.

Officials based in Mumbai and Bengaluru are seeking detailed disclosures from offshore investors, many of whose scrutiny assessments are set to become time-barred by March 31, 2026, the Economic Times noted.

The funds selected for scrutiny are those that have either directly or indirectly exited investments in India and did not pay tax on the gains by relying on India's tax treaties with Mauritius and Singapore, the Economic Times reported.

Tax authorities believe that obtaining additional details about the Mauritius and Singapore entities will strengthen their position while finalising scrutiny assessment orders, three people familiar with the matter told the Economic Times. Assessment orders for the 2023-24 tax year are required to be issued before the end of the current financial year.

As part of the exercise, private equity and venture capital firms have been asked to disclose the sources of their funds, bank account signatories, roles of directors, details of ultimate beneficial owners, and information on expenses and operational set-ups in Mauritius and Singapore. They have also been asked to share details of the entities to which shares were sold and clarify whether the buyers were related parties, the Economic Times said.

"The nature and breadth of these inquiries indicates a clear intent to apply the principles emerging from the Tiger Global ruling across a wide spectrum of earlier acceptable Mauritius holding and fund structures, and it remains to be seen whether judicial anti-avoidance principles might be invoked alongside cases being escalated to the GAAR panel," Parul Jain, head of the international tax practice at Nishith Desai Associates, told the Economic Times. GAAR, or the general anti-avoidance rule, is aimed at curbing aggressive tax planning.

Jain also cautioned that with tax authorities seeking information on buyers, "parallel proceedings against counterparties for alleged failure to withhold taxes cannot be ruled out," she told the Economic Times.