Aditya Bhattachrya on Tiger Global Ruling: Limited Impact on FPI Flows, Greater Focus on Tax Substance
Aditya Bhattachrya in a recent Business Standard article, has stated that the recent Tiger Global tax ruling is unlikely to result in any immediate or large-scale sell-off by foreign portfolio investors (FPIs). According to him, FPIs typically factor tax risks into their investment decisions over time, and the ruling is largely confined to issues of grandfathering and economic substance.
He observed that the impact on capital flows is expected to be minor, as the ruling applies only to a narrow category of investments seeking treaty protection under grandfathering provisions. He also noted that its scope is limited rather than systemic, reducing the likelihood of broader market disruption.
Rather than exiting India, Aditya mentioned the FPIs to reassess and strengthen their investment structures. He pointed out that investors are likely to enhance economic substance, revisit treaty positions, and realign holding structures to ensure compliance with GAAR, the principal purpose test (PPT), and limitation of benefits (LOB) requirements. Increased emphasis on robust documentation and conservative tax positions is anticipated, as opposed to aggressive restructuring.
Commenting on treaty-based investing, Aditya added that while Mauritius continues to remain relevant, cross-border investments are now increasingly compliance-driven rather than tax-driven, reflecting the evolving regulatory and enforcement landscape.
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