GAAR emerges as a central tool in tax enforcement after Tiger Global ruling

Supreme Court's Tiger Global ruling strengthens GAAR, pushing taxpayers to rethink treaty benefits, legacy structures and cross-border tax planning

The Supreme Court’s interpretation of the General Anti-Avoidance Rule (Gaar) in the Tiger Global case has reinforced its position as a core instrument in India’s tax enforcement framework, prompting taxpayers to reassess both existing structures and future transactions. Gaar allows tax authorities to deny tax benefits if a transaction is primarily designed to avoid tax, and lacks real commercial substance.

 

“The Supreme Court’s ruling in the Tiger Global case is a defining moment in India’s international tax jurisprudence, and is poised to influence future application of tax treaties and structuring of cross-border arrangements,” said Richa Sawhney, tax partner, Grant Thornton Bharat. She added that “taxpayers may need to evaluate their existing arrangements in light of the principles laid down by this decision”.

 

A key takeaway from the judgement is the court’s approval of Gaar operating alongside the judicial doctrine of “substance over form” under which tax authorities examine the real economic purpose of a transaction rather than its legal structure. “The ruling indicates that Gaar can operate alongside the doctrine of substance over form. This will have implications for all transactions wherever treaty benefits are claimed,” said Sandeep Bhalla, partner with Dhruva Advisors. He also pointed out that the ruling has weakened the protection offered by grandfathering provisions, a factor taxpayers will need to reconsider going forward.

 

The apex court has clarified that Gaar can apply where the main objective of an arrangement is to obtain a tax benefit, and at least one of the four tainted elements — misuse of law, lack of commercial substance, non-arm’s-length dealings, or absence of bona fide purpose — is present. These tests are broadly framed, raising concerns around certainty. “With Gaar invocation gaining momentum, there is a need for comprehensive guidance on all facets of the Rule. Case studies and examples would help reduce subjectivity,” Sawhney said.

 

The ruling also reduces the importance of Tax Residency Certificates (TRCs) in claiming treaty benefits. “TRC is not a guarantee card for claiming tax-treaty benefits,” said Rajan Sachdev, partner, Nangia Global. He noted that the court held Gaar can apply to any arrangement yielding tax benefits on or after April 1, 2017, “irrespective of the date on which the investment was made”.

 

Sandeepp Jhunjhunwala, partner at Nangia Global Advisors, said the ruling reflects a broader enforcement shift. “Gaar is increasingly being used as a substantive anti-avoidance tool rather than a measure of last resort,” he said, pointing to its application in recent domestic demerger and restructuring cases as well.

 

Rahul Charkha, partner, Economic Laws Practice, said the ruling “significantly bolsters Gaar from a direct tax standpoint”, and serves as a reminder that “a TRC alone will not inoculate a transaction from domestic scrutiny”. He added that the court has clearly explained how Gaar can extend to arrangements where tax benefits arise after April 1, 2017, even if investments were made earlier.