In a development that could significantly reshape the landscape of merger and acquisition (M&A) transactions in India, legal and consulting experts are cautioning that a recent Supreme Court ruling on Tiger Global's capital gains tax liability may complicate the availability and terms of tax insurance for such deals. The landmark verdict, which held the US-based private equity firm liable for taxes on its Flipkart share sale, is expected to prompt insurers to adopt a more cautious approach, potentially leading to higher premiums and stricter underwriting criteria.
Supreme Court Verdict Sets a Precedent
On 15 January 2026, the Supreme Court of India delivered a precedent-setting judgment, ruling that Tiger Global must pay capital gains tax on its $1.6 billion sale of Flipkart shares to Walmart in 2018. The court rejected Tiger Global's claim for exemption under the Mauritius tax treaty, overturning a previous Delhi High Court decision. In its ruling, the bench of Justices R. Mahadevan and J.B. Pardiwala stated that the transactions were "impermissible tax-avoidance arrangements," emphasizing that taxing income arising within a country is a sovereign right.
Impact on Tax Liability Insurance
Tax liability insurance, commonly used in M&A deals to protect against potential tax disputes, may undergo fundamental changes following this ruling. Ankur Nishar, partner-tax at KPMG India, noted in a webinar that the availability of such insurance could be affected, with insurers likely to reassess their willingness to underwrite treaty-related tax risks. This insurance typically ringfences tax risks, allowing sellers to avoid providing extensive warranties and preventing buyers from renegotiating deal prices based on tax uncertainties.
However, the Supreme Court's finding that even legacy structures may be evaluated as impermissible avoidance arrangements could lead insurers to apply exclusion clauses more strictly. Kalpesh Desai, partner for M&A tax at KPMG in India, explained that this might make payouts in similar cases increasingly unlikely, as insurers heighten their scrutiny of holding company structures and substance levels.
Increased Premiums and Stricter Terms
Industry experts predict that the ruling will create an "increased perception of scrutiny, uncertainty and risk," as noted by Dinesh Kanabar, CEO of Dhruva Advisors. This perception is likely to translate into higher premiums for tax insurance, as insurers adjust their risk assessments. A senior executive at a global insurance broker operating in India highlighted that the judgment could trigger claims under existing policies and have broad implications for taxation insurance as a whole.
Moreover, insurers may now avoid covering deals even if they have been cleared by lower tribunals or high courts, preferring to wait for Supreme Court verdicts before providing coverage. This shift could delay transactions and increase costs for parties involved in M&A activities.
Legal and Structural Implications
The ruling is also expected to lead to more stringent legal structuring for M&A deals, particularly when transactions are insured. Gouri Puri, partner for tax at Shardul Amarchand Mangaldas & Co., pointed out that withholding tax insurances, which had become commonplace in private equity deals, may face heightened scrutiny. The judgment has altered the legal landscape against which such insurances were issued, necessitating greater due diligence on the part of insurers and their advisors.
In response to the ruling, consulting firms have held multiple meetings with clients, insurers, and brokers to discuss precautions and strategies moving forward. There is speculation that the government or Central Board of Direct Taxes might issue guidelines to mitigate concerns, which could have a soothing effect on the market.
Overall, the Tiger Global ruling marks a pivotal moment for M&A transactions in India, potentially reshaping how tax risks are managed and insured in future deals, with significant implications for investors, insurers, and legal practitioners alike.
