The Supreme Court of India, in Authority for Advance Rulings v. Tiger Global International II Holdings (2026 INSC 60), pierced the corporate veil of entities within the Tiger Global investment structure, holding that subsidiaries functioning as "puppets" of their parent entity, without independent commercial substance, establish a prima facie case of tax avoidance. The judgment carries significant ramifications for international tax planning and the structuring of foreign portfolio and direct investments into India.
Background
The matter arose from proceedings before the Authority for Advance Rulings (AAR) concerning the tax treatment of gains derived by Tiger Global International II Holdings, a Mauritius-based entity within the Tiger Global group, from the sale of shares in an Indian company. The assessee sought a ruling that the capital gains were not taxable in India by virtue of the India-Mauritius Double Taxation Avoidance Agreement, which historically provided exemption from capital gains taxation for Mauritius-resident entities disposing of shares in Indian companies.
The Revenue challenged the AAR proceedings, contending that the Mauritius entity lacked independent commercial substance and was merely an interposed vehicle controlled entirely by the parent entity based in the United States. The central question before the Supreme Court was whether the corporate structure could be disregarded for tax purposes and, if so, what evidentiary threshold applies to establish that an entity is being used as a conduit for tax avoidance.
Key Holdings
The Supreme Court's analysis established the following principles with far-reaching consequences for international tax structuring:
Corporate veil pierced on grounds of control: The Court held that where a parent entity exercises such pervasive control over a subsidiary that the subsidiary functions as a mere "puppet" — lacking independent decision-making capacity, operational autonomy, or genuine business activity — the corporate veil may be pierced to determine the true nature of the transaction for tax purposes.
Absence of commercial substance as a decisive factor: The Bench held that the absence of commercial substance in the interposed entity is a critical indicator of tax avoidance. Where an entity has no employees, no independent operations, and no business rationale beyond serving as a conduit for investment flows, the presumption of separate legal personality weakens significantly.
Centralised control establishes prima facie avoidance: The Court observed that centralised control over the subsidiary's investment decisions, fund movements, and exit strategies by the parent entity is sufficient to establish a prima facie case of tax avoidance. The burden then shifts to the assessee to demonstrate genuine commercial purpose and independent economic activity.
Implications for treaty benefits: While the judgment does not disturb the validity of the India-Mauritius DTAA itself, it affirms that treaty benefits cannot be claimed by entities that are mere nominees or conduits lacking genuine residence and substance in the treaty jurisdiction.
Implications for Practitioners
This judgment represents a watershed in India's approach to international tax structuring involving multi-layered holding entities. Practitioners advising foreign investors must recognise that Indian courts will now subject interposed entities to rigorous substance-over-form analysis, particularly where the beneficial ownership of Indian assets is routed through jurisdictions with favourable treaty provisions.
The "puppet" characterisation employed by the Court introduces a vivid and potentially expansive test. Advisors structuring inbound investments should ensure that intermediate holding entities maintain demonstrable commercial substance — including local management, independent decision-making authority, dedicated personnel, and genuine economic activity — to withstand judicial scrutiny. Paper-thin structures maintained solely for tax efficiency are now exposed to significant litigation risk.
For the Revenue authorities, the judgment validates an aggressive but evidence-based approach to challenging treaty shopping. Tax practitioners should anticipate increased scrutiny of advance ruling applications and assessment proceedings involving multi-jurisdictional structures, particularly those established prior to the 2017 amendment to the India-Mauritius DTAA that introduced source-country taxation on capital gains.
Private equity funds and foreign portfolio investors with existing India-facing structures should conduct an immediate review to assess vulnerability under the principles articulated in this judgment.