new delhi, Jan. 16 -- The Supreme Court ruled that Tiger Global is liable to pay capital gains tax on its sale of Flipkart shares more than seven years ago, in a precedent-setting verdict for investors from countries with which India has tax treaties. A bench of justices J.B. Pardiwala and R. Mahadevan said the real control of Tiger Global's Mauritian entities lay with its US parent, backing the tax department's position. Once the mechanism of using Mauritian entities is found to be illegal or sham, it ceases to be "a permissible avoidance" and becomes "an impermissible avoidance" or "evasion", the apex court ruled. In 2018, the Mauritian entities of Tiger Global sold shares of Flipkart Singapore (which owned Flipkart India) to Walmart for $1.6 billion. Tiger Global's request for a tax exemption citing the Mauritius tax treaty was rejected by the tax department, but upheld by the Delhi High Court. Thursday's SC ruling overturns the HC verdict, making Tiger liable to pay tax in India. The judgment potentially changes how India taxes foreign investors and how it reads its most important tax treaty, the India-Mauritius Double Taxation Avoidance Agreement (DTAA). Experts said that it may also prompt the tax department to scrutinize similar transactions closer. According to Gouri Puri, partner, Shardul Amarchand Mangaldas & Co, it will impact all current and prior mergers and acquisitions where investors have claimed tax treaty benefits. "Private equity players and foreign portfolio investors need to look at their investment structures and rethink returns. Tax litigation around tax treaty claims may increase and impact the tax insurance market. "But the big takeaways are dilution of tax residency certificate, use of general anti-avoidance rule (GAAR), and a key landmark in the evolution of India's tax treaty jurisprudence," she added. In 2016, India amended the India-Mauritius tax treaty to curb tax avoidance, stating shares bought on or after April 1, 2017 would be taxed in India. Investments made before this date continued to enjoy tax exemption, subject to certain conditions. The key issue in the Flipkart case, therefore, was whether Tiger Global could claim tax exemption under the treaty, or whether its Mauritius-based entities were merely "front" companies controlled from the US. The Supreme Court said the focus must be on the substance of the transaction, rather than merely the location where the company is registered. It said that after the tax treaty changes, having a tax residency certificate alone is not enough. Even if an investment was made before the cut-off date, that protection will not apply if the structure was mainly used to get a tax benefit. The judges said the law was changed to stop the practice of routing investments through places like Mauritius solely to avoid tax. The verdict opens the door to re-examine past exits by foreign investors and even exits in initial public offerings, said Siddarth Pai, co-founder, 3one4 Capital....