Cross-border risks fuel race for cover

The Supreme Court (SC) judgment on Tiger Global is prompting companies to consider insurance and legal measures to guard against potential tax reassessments and penalties, experts said.

- Anshika Kayastha & Krishna Yadav

Insurance demand is to protect foreign investments.

(ISTOCKPHOTO)

A tax residency certificate (TRC) alone is no longer conclusive evidence for claiming tax exemption under a Double Tax Avoidance Agreement (DTAA). The SC said that merely relying on an entity in a jurisdiction with which India has a DTAA is not enough. It said tax officials have the right to check whether the entity exists for the purpose of routing investments, 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.