Treaties must guard tax sovereignty of India: SC

With newer and newer trade complexities emerging in the global arena, nations should rethink very long-term treaties

- Utkarsh Anand

Emphasising that international treaties entered into by India must be guided by national interest and not pressure from foreign governments or multinational corporations, the Supreme Court has laid down a detailed checklist of safeguards to ensure that tax treaties protect the country’s economic sovereignty, revenue base and public interest.

The suggestions came in a significant ruling delivered on Thursday in the Tiger Global-Flipkart case, where the court held that capital gains arising from the American investment firm's $1.6-billion stake sale in Flipkart to Walmart in 2018 were taxable in India.

While the judgment on tax liability was authored by Justice R Mahadevan, Justice J B Pardiwala wrote a separate but concurring opinion, spelling out broader principles on how India should approach international tax treaties in an era of geopolitical uncertainty. The occasion for Justice Pardiwala to articulate broader principles on how India should approach international tax treaties arose from the court's Thursday ruling, which analysed the interplay between domestic anti-avoidance provisions, including the General Anti-Avoidance Rules (GAAR), and the India-Mauritius Double Taxation Avoidance Agreement (DTAA).

Justice Pardiwala warned that tax treaties should not become instruments that weaken India’s sovereign right to tax income generated from its own soil. “Treaties should be driven by national interest, not pressure from foreign governments or corporations,” said the judgment.

Checklist for future treaties