New Delhi, Jun 10 (IANS): Tiger Global is understood to have approached the courts as the Authority of Advance Ruling (AAR) refused to grant relief over tax liability on its Rs 14,500 crore exit from Flipkart.

According to reports, the hedge fund is likely to argue that the investment arms were not liable to pay tax in India.

Tiger Global owned around 22 per cent stake in Flipkart's parent through its Mauritius-based SPV, out of which they sold approximately 17 per cent to Walmart's Luxembourg-based entity FIT Holdings SARL in a deal that was valued at Rs 14,500 crore in 2018.

Arguably, the entities were located as part of tax planning to avoid capital gains tax in India and Europe. As per the Double Taxation Avoidance Agreement (DTAA) between India and Mauritius, if a resident of Mauritius sells shares in an Indian company, she or he shall be taxed in Mauritius instead of being taxed as per the Indian Income Tax Act. Companies registered in Mauritius have gained from this rule as there is no tax on capital gains in the island country.

Mauritius became the most popular route to route investment in India in the last two decades. As much as $134 billion, which made up 32.01 per cent of all FDI was sourced through Mauritius between April 2000 and March 2019.

The treaty was amended in 2016 and all the shares acquired on or after April 1, 2017 in an Indian resident company became taxable on sale as per the Indian tax system.

AAR rejected the US-based hedge fund's application for exemption under this treaty. AAR has said that Tiger Global set up an SPV in Mauritius only to avoid paying taxes in India, hence they should not be awarded the tax exemption. Tiger Global has argued that these shares were acquired before the amendment and therefore, qualify for the exemption.