SC's Tiger ruling sparks demand for insurance, legal protection for investments

Subscribe to enjoy similar stories. MUMBAI : The Supreme Court (SC) judgment on Tiger Global, upholding capital gains tax on its Flipkart share sale, has opened the door for a review of similar past investments by other entities.

This is prompting companies to consider insurance and legal measures to guard against potential tax reassessments and penalties, experts said. What has emerged from the SC judgement in the Tiger Global case is that a tax residency certificate (TRC) is by itself no longer conclusive evidence for claiming tax exemption under a Double Tax Avoidance Agreement (DTAA).

The SC has said that merely relying on an entity in a jurisdiction with which India has a DTAA is not sufficient. In such cases, Indian tax authorities have the right to lift the veil of the entity and check whether the entity exists for the purpose of routing investments to take advantage of the DTAA, or whether it carries out business in substance from that jurisdiction, leaving entities more vulnerable to tax risks.

Sushant Sarin, managing director, Aon India, and head of strategy & commercial risk solutions, said there is an increase in demand for tax indemnity insurance covers from entities that have made investments and are concerned about potential tax liability due to insufficient proof of substance for DTAA exemption. DTAA allows companies and investors to avoid being taxed twice on the same income across two countries, facilitating cross-border investments.

Tax indemnity policies are typically for six-seven years, but can be taken for a longer period. Typically insurance is taken before the conclusion of the deal and the policy period can be extended on mutually agreeable terms, wherein the insurance policy pays for the