The Supreme Court's Decision in 'Tiger Global'
The recent Supreme Court decision in the 'Tiger Global' case has set a precedent in India's treaty jurisprudence, reinforcing anti-abuse principles while introducing uncertainties for investors, taxpayers, and tax professionals. The ruling emphasizes that substance must prevail over form, and entities existing merely on paper cannot claim treaty benefits.
Key Takeaways
- Tax Residency Certificate (TRC):
- TRC is relevant but not conclusive evidence of treaty entitlement.
- Possession of a TRC is only the starting point for claiming treaty benefits.
- Substance Over Form:
- The court's decision hinges on the principle that substance must prevail over form.
- The definition of 'substance' in the treaty context remains unclear.
- Guidance Needed:
- The Central Board of Direct Taxes (CBDT) should provide detailed guidance on assessing 'substance'.
- There is a need for clarity on assessing factors like people, decision-making authority, risk assumption, and capital deployment.
- Capital Gains and Treaties:
- The court's stance on the India-Mauritius treaty has raised questions about treaty benefits for indirect transfers.
- Consistency in application across treaties with similar wording is needed.
- Non-Taxability vs Non-Payment:
- Clarification is needed on whether treaty benefits are denied in cases of non-payment of tax due to exemptions or thresholds.
- Impact on Cross-Border Transactions:
- Indian taxpayers rely on TRCs and transactional documents for overseas remittances.
- Guidance is needed on additional diligence expected beyond TRCs.
Conclusion
The 'Tiger Global' decision clarifies the 'what' of treaty abuse, but further administrative guidance is required to elucidate the 'how' of practical compliance. A comprehensive CBDT guidance note is crucial to bridge the gap between judicial principles and compliance, ensuring clarity and reducing litigation risk.
