Exit offshore: mitigating disputes risk under double taxation treaties after Tiger Global

This is a joint publication by Ashurst and Dipesh Jain and Yash Ranglani of India's Economic Laws Practice.

Introduction

Double tax treaties (DTTs) play a key role in facilitating cross-border trade and investment. Their primary purpose is to prevent the same income, or gains, being taxed in two different jurisdictions. As global political and economic conditions have changed, DTTs have evolved. This was particularly the case in the aftermath of the 2008 global financial crisis, with significant reforms introduced by way of a single multinational instrument agreed through the Organisation for Economic Co-operation and Development (OECD)¹ .

What will the fate of these treaties be in an ever more fragmented world?

A recent decision of the Supreme Court of India sheds light on how tax authorities may come to approach DTTs. The Tiger Global decision involved denial of treaty benefits, where tax avoidance and lack of commercial substance was alleged, in the light of India's evolving domestic anti-abuse regime. The decision didn't constitute a definitive determination on the taxability of the transaction at issue. But it sounds a warning for investors looking to exit investments via the sale of an offshore holding company.

Lawyers from Ashurst and India's Economic Laws Practice explore below the decision, the broader trend it may exemplify and how investors can protect themselves.

Substance over form prevails: the decision of the Indian Supreme Court in Tiger Global² highlights the well-trodden anti-avoidance path of focusing on the commercial reality behind contractual documentation. The Supreme Court's ruling reinforces India's tax sovereignty and prompts wider uncomfortable questions for the global investment market. Can there be continued confidence in the interplay of offshore low-tax jurisdiction structures and treaty benefits under DTTs or do investors need to focus more on underlying commercial substance? Will the impact of Tiger Global be confined solely to India's approach to taxation of cross-border investment and offshore exits or are other states destined to follow suit?

Either way, in the aftermath of Tiger Global, what is clear is that it is now more important than ever for investors and businesses alike to ensure that steps are taken to mitigate the risk of disputes arising in relation to DTTs, whether that's upon investment, or exit.

While the judgment does include observations on the availability of treaty protection in cases involving indirect transfers, it may be argued that these are not binding and such arguments are typically difficult to advance. The central issue before the Court was the maintainability of the application for tax relief in the context of a prima facie tax avoidance arrangement. That said, these observations are likely to carry persuasive weight and may be relied upon by the tax authorities when examining similar structures.

Indeed, if the global landscape is changing and a state's tax sovereignty is of increasing importance compared to the desirability of international co-operation, is foreign direct investment at risk of being disincentivised? In this environment, what should private capital and venture capital firms be doing to mitigate any risk of disputes arising on exit?

Operation of double tax treaties and key controversies

Double taxation arises where two jurisdictions seek to tax the same income or gains. This may occur, for example, when a company is resident in one jurisdiction, but receives income from economic activities carried out in a second jurisdiction. When each jurisdiction seeks to levy tax on that income, you have double taxation.

DTTs generally seek to eliminate double taxation. They allocate the right to tax between the contracting states. This may be achieved by exempting taxation in one of the contracting states in which the relevant income or gain arises, or by providing for a contracting state to credit the taxpayer for taxes paid in the other contracting state.

You would be forgiven for thinking that parties need only consider the position under the relevant DTT and taxation of the relevant entity would operate accordingly. But while DTTs set out the governing framework, taxpayers in practice also need to factor in domestic anti-avoidance rules and the way these are increasingly being interpreted.

In practice, there are several areas of complexity which can give rise to controversy. These include arguments over the tax residence of a company; where its substance of operations are as opposed to where the company is incorporated; and conflicts with domestic anti-avoidance measures. In particular, following the introduction of General Anti-Avoidance Rules (GAAR) in India and similar anti-abuse measures, the interplay between domestic law and treaty provisions has become a key area of dispute.

While several of these issues come to the fore in Tiger Global (as summarised below), they can largely be mitigated at a structural and contractual level with timely and considered tax planning.

What happened in Tiger Global?

Background – AAR and High Court decisions

• In 2018, Tiger Global Management LLC (TG), resident in the USA, exited its investment in India's Flipkart as part of its acquisition by Walmart (the Walmart Disposal). TG had invested in Flipkart through a multi-layer offshore structure involving entities incorporated in the Cayman Islands and Mauritius. The Mauritius-resident entities (Tiger Global International II, III and IV Holdings) (the Mauritian Companies) held shares in Flipkart’s Singapore holding company, which in turn held the Indian business.
• As part of the transaction, the Mauritius entities sold shares of the Singapore holding company, earning substantial capital gains. Under Indian tax law, such offshore transactions may be taxable in India where the underlying value of the shares derives substantially from assets located in India.
• The Mauritian Companies claimed relief from Indian income tax on the sale of the Flipkart shares under the India-Mauritius Double Taxation Avoidance Agreement (the DTAA). Relying on Article 13(4) of the DTAA, TG contended that, despite the fact that the shares being sold were of a Singapore entity, such entity derived its value substantially in India, so it should be entitled to relief under this Article³ . TG further contended that grandfathering of the shares being sold applied and, as such, Article 13(3A) should apply to grant exemption from capital gains taxation.⁴
• The Indian tax authorities refused to grant this relief, on the basis that the Mauritian Companies were not independent and had no decision-making powers in respect of the Walmart Disposal. A US-based individual had the authority to operate the Mauritian Companies' bank accounts for transactions over $250,000, and the same individual was appointed as the authorised signatory and declared to be the beneficial owner of the Mauritian Companies and their immediate parents.
• The Mauritian Companies approached the Indian Authority for Advance Rulings (AAR) for a determination on this point. The AAR found that the Mauritian holding structure, coupled with the fact that operational decision-making lay with US individuals, pointed on its face to a tax avoidance motive. It rejected the application for relief. Furthermore, the AAR considered the DTAA relief was only intended to apply to direct transfers of shares in an Indian company, whereas the Tiger Global transaction involved a transfer of shares in a Singaporean entity.
• The AAR concluded that the primary motivation of the Mauritian structure was to obtain a tax benefit under the DTAA, and therefore that there was an avoidance motive. The AAR therefore found the Mauritian Companies were liable to pay tax in India of between 6.05%-8.47% on the sale proceeds.
• Tiger Global appealed. The Indian High Court quashed the AAR order, noting that the appellants were entitled to treaty benefits and that the income from the sale was not chargeable to tax in India.

Supreme Court decision

• On 15 January 2026, the Supreme Court overturned the High Court's decision. It accepted the AAR's findings that the effective control and management of the Mauritian Companies did not lie with their boards in Mauritius, but with the US individual.
• The court noted that the Mauritius Companies were seeking an exemption from Indian income tax, but were also seeking an exemption under Mauritian law. The DTAA was not intended to facilitate avoidance under both tax codes.
• Although the Mauritian Companies each held valid tax residence certificates (TRCs) issued by the Mauritian authorities, the Supreme Court held that "the mere existence of a TRC is... insufficient to establish the resident status of the applicant in the other State." In other words, the principle of "substance over form" remained central.
• This reinforces the position that a TRC, while necessary, may not be sufficient, particularly in the context of GAAR and broader anti-abuse principles.
• Under Indian avoidance rules, since the Mauritian Companies had no real substance in Mauritius, the Indian tax authorities were therefore entitled to declare the transaction an impermissible avoidance arrangement.
• Consequently, as a transaction impermissible under law (and given the Supreme Court's observation that treaty protection may not extend to indirect transfers involving shares of non-Indian companies i.e., in the present case, shares of Flipkart Singapore), the Mauritian Companies were not entitled to an exemption from Indian income tax under the DTAA.
• The Court affirmed that domestic anti-abuse provisions can take precedence in denying treaty benefits where the underlying arrangements lack commercial substance.
• At its core, the judgment turns on the distinction between a genuine investment and an impermissible arrangement. The Court seems to have treated the structure as the latter, and on that basis, declined to extend even the grandfathering protection typically available to certain historic investments under GAAR.

Tiger Global: imminent butterfly effect or the proverbial tree falling in the woods?

You would find it difficult not to stand up and take notice of this ruling. It reaffirms the notion that DTTs are instruments intended to mitigate double taxation; not to be used in a manner that could result in unintended double non-taxation. However, where a DTT applies an exemption in one jurisdiction, why should a taxpayer have to consider whether taxation arises in the other jurisdiction?

The case illustrates the key controversies noted above. It was evident that TG's substance of operations was not located in Mauritius but rather the decision-making was at the US individual level. The Mauritian entities were used as holding vehicles and in an executory capacity. While TG argued that the Mauritian Companies should have been able to rely on the DTAA treaty benefits as Mauritian tax resident entities, the Supreme Court was not satisfied that the TRCs were sufficient to dispel a clear tax avoidance motive. The ruling also indicates that determination of residence is no longer a purely formal exercise based on incorporation or TRC, but involves examination of control and management.

It is noticeable that the Indian Supreme Court focused more astutely on its anti-avoidance concerns in respect of the use of Mauritian Companies as a route for double non-taxation. Other international Supreme Courts on similar issues (for example, the Danish cases⁵ ), have chosen to focus on tax residence through the lens of substance and looking through corporate structures to the beneficial owner of shares. In other words, taking Tiger Global as the example, if the substance of operations is in the US, can the Mauritian Companies, regardless of holding TRCs, genuinely be considered tax resident in Mauritius for the purposes of the DTAA, in the first place?

Is tax sovereignty eclipsing international co-operation?

In light of the continuing complexity in modern corporate structures, could we see the ramifications of the Tiger Global decision echoing internationally?

An interesting aspect of the Supreme Court judgment is Pardiwala J's concurring opinion. This explores the dichotomy of aims between a state's tax sovereignty and international tax co-operation. With a turbulent global economy of tariff and trade wars, tax sovereignty can be critical in weathering such storms and ensuring a reliable domestic tax base.

Pardiwala J acknowledged that investor confidence is rooted in certainty. A balancing act of limiting domestic tax erosion with promoting investment is required and can only be maintained with appropriate safeguards and clear anti-avoidance measures in place.

Contractual and structural risk mitigation

Regardless of whether Tiger Global may be an isolated decision with no ripple effect or part of a broader international narrative, it is clear that being proactive rather than reactive in corporate structuring and acquisitions has its benefits.

Mitigation of disputes can take various forms. Either in considering future investments or exits, investors and sellers alike would be well-advised to scrutinise their existing structures and documentation and engage in early tax-planning to best protect their interests. Investors and businesses may want to reconsider their structural frameworks and contractual protections to better manage dispute risk, particularly in the context of offshore exits involving India-centric assets.

By way of example, these are some practical steps private equity firms and international corporate groups should take:

Structuring – mitigating structural risk

• Commercial substance: structuring any business accordingly so that the board meetings, decision-making processes, execution of documents and general governance are genuinely undertaken in the investor entity’s jurisdiction, with contemporaneous documentation evidencing board deliberations, strategic decisions and assumption of risk in that location. Mere incorporation or formal documentation is no longer sufficient; there must be a credible commercial rationale linking the entity to the jurisdiction, supported by real decision-making authority and an actual operational presence.
• DTT compliance: an equally important aspect is a considered approach to treaty reliance. Investors should ensure that any claim to DTT benefits is anchored in a genuine commercial framework, rather than driven solely by tax outcomes. This requires aligning operational realities with treaty conditions, while remaining mindful of domestic anti-avoidance provisions, including GAAR, which may override treaty relief in the absence of sufficient substance.
• Review existing structures and investments: a health-check of existing structures is prudent, particularly in relation to any Indian exits, to consider if there's likely to be an impact on exit proceeds. Such a review should cover potential exposure under indirect transfer rules, GAAR, and evolving judicial positions. This becomes particularly relevant in light of the increasing scrutiny of complex offshore structures, especially those involving intermediate entities without a clear commercial rationale. If so, subject to commercial substance requirements, query whether it would be possible to restructure investments to benefit from a more tax-efficient exit. However, in reality, this may prove difficult given the complexities of navigating certain requirements. For example, the principal purpose test which will, if applicable, act to deny treaty benefits such as these where the transaction or arrangement can be said to have been primarily for the purpose of obtaining such benefit.
• Clearances: investors or sellers could (jurisdiction permitting) seek clearances or confirmations from the relevant tax authorities. Although, as with Tiger Global and TRCs, if there isn't the commercial substance to reinforce the position, any such clearance is not guaranteed.
• Dispute preparedness: investors should be conscious that they may have to prepare for heightened scrutiny from tax authorities and ensure that their structures are backed by robust documentation evidencing commercial substance, effective control and alignment between form and actual conduct. Investors may wish to consider the preparation of defence files (comprehensive collections of relevant documents) which is becoming increasingly common where there is a heightened prospect of tax authority scrutiny.

Investment documentation – mitigating risk

• Representations: transaction documents should be strengthened to reflect and support the underlying tax position. They should provide robust protection by including representations by sellers as to tax residency, place of effective management and control and substance of operations (i.e. employees, premises and decision-making authority) so as to support any future treaty benefit claim.
• Indemnities: where there are concerns in respect of any representations, it may be appropriate for a buyer to seek specific indemnities for tax liabilities arising as a result of a challenge of any treaty benefit. A buyer will be concerned to have adequate contractual protection against the risk of a state seeking to recover any portion of the seller's tax from it, or the asset it has acquired.
• Withholdings and deductions: consideration should also be given to the treatment of withholding taxes and tax deductions in transaction documents, ensuring that economic expectations are preserved and that appropriate mechanisms are built in to address any unforeseen tax liabilities.
• Escrow and Parental Guarantees: parties may consider structuring an escrow arrangement, whereby a portion of the consideration is retained to cover potential tax exposures until the limitation period for initiation of proceedings by the tax authorities has lapsed. In addition, buyers may seek a parental guarantee from the seller’s parent entity to secure reimbursement of any tax liabilities, particularly where the immediate seller proposes to liquidate or repatriate funds following closing.
• Tax insurance: with the increase of insured deals in the marketplace, a standalone tax insurance policy may be an appropriate course of action to hedge any concerns around the reliability of the structural position. But decisions like Tiger Global are likely to limit the scope, and increase the cost, of such insurance.

Governing law and dispute resolution

• Both buyer and seller will benefit from selecting a law to govern the transaction documents which promotes certainty and predictability. International laws, like those of England and New York, are popular choices. It is prudent to select a law to govern the contract other than that of the jurisdiction where any tax may be levied. That is because it is less likely to be affected by any retrospective changes which may be made to the tax law.
• A similar approach applies to dispute resolution. Litigating contractual claims in the courts of the state which is levying tax may be undesirable. International arbitration is usually preferable. It gives the parties the opportunity to select a neutral forum (seat) of the arbitration and international standard rules to regulate the procedure. The parties will also be able to select a tribunal with appropriate expertise and independence.

Government assurances, including stabilisation protection

Many investments in states do not involve any direct interaction between investor and government. The investor merely invests in accordance with the laws, and interacts with government authorities as any other entity in the jurisdiction would. However sometimes investors will enter into contracts directly with the state. This is particularly common in the energy and resources sectors, in the form of concessions or production sharing agreements.

These direct agreements provide the opportunity for investors to seek direct assurances and undertakings from states in respect of taxation. Such provisions may afford investors a special tax status. More commonly states agree that they will not change the tax regime in effect as at the date of the contract, and, if they do, they will keep the investor whole. "Stabilisation clauses" like this provide real value to investors. They give a direct right of recourse against a government which changes tax policy after an investment is made, and can usually be enforced directly in arbitration proceedings. A stabilisation clause might, for instance, assist an investor if a state were to abrogate, or limit the scope of, a DTT after an investment is made.

Investment treaty claims

The other avenue potentially available to a foreign investor is an investment treaty claim. Investment treaties can take the form of bilateral investment treaties between two states or multilateral investment treaties between multiple states (BITs or MITs). These treaties, which are devised to encourage foreign investment, commonly include provisions which establish specific protections for investors from the respective states.

The interaction between investment treaties and tax law is complex. Investment treaties often restrict the extent to which they can be used to bring tax claims against states. This is particularly in the area of national treatment and most favoured nation treatment requirements (intended to ensure that foreign investors are treated no less favourably than nationals of the host state, or other states). However such exclusions are unlikely to preclude a claim where a change in tax law amounts to de facto expropriation without adequate compensation, or a clear breach of an investor's entitlement to fair and equitable treatment.

In India's case, previous changes in tax laws resulted in high profile arbitration proceedings against the state by Vodafone and Cairn Energy.

An investor seeking to claim under an investment treaty will need to establish that it has the requisite nationality to enjoy protection, and has made an investment within the scope of the treaty. Many treaties define these requirements liberally. In the case of an investor, incorporation in the investing state party to the treaty will suffice. But some treaties impose a more restrictive test, and some tribunals have considered whether substantial business activities in the investing state are a prerequisite to reliance on the treaty. This approach echoes the concerns about misuse of DTTs described above.

Horizon scanning following Tiger Global

The Tiger Global case is notable because it crystallises a debate about the role of DTTs in an increasingly fragmented world. DTTs enjoyed popularity as a way of fostering international cooperation and encouraging inward investment. As the narrative in many states turns more towards protectionism and "tax sovereignty" (a term used 22 times in Pardiwala J's concurring opinion), DTTs are likely to be subject to increased uncertainty.

In particular Tiger Global indicates that tax authorities are likely to engage more in a genuine consideration as to the substance of tax residency.

This is occurring against the backdrop of an ever-growing digital economy, raising questions about how DTTs should apply to digital business models.

While it is still too early to say whether the Tiger Global decision has, or will have, a knock-on effect across other jurisdictions, we anticipate multinationals, private capital and venture capital firms will carry out a more extensive exercise of reviewing future cross-border investments and health-checking existing structures, and exit strategies to confirm whether they are vulnerable to similar challenges.

Ultimately, while there is scope for elements of the Tiger Global decision to influence future interpretation, it must be read in the context of the issue before the Indian Supreme Court. Nonetheless, the decision poses a question of whether there may be a move towards substance-driven scrutiny by tax authorities in challenging offshore structures.

The takeaway for investors is clear: treaty protection may now turn on demonstrable substance. Proactive structuring, effective governance and robust documentation will be essential to mitigate dispute risk.

Additional author: Euan Mills (Associate)