Supreme Court's Tiger Global Judgment Triggers Insurance and Legal Protection Demand
The Supreme Court of India's recent ruling in the Tiger Global case has sent shockwaves through the corporate and investment landscape, sparking a significant surge in demand for specialized insurance products and legal safeguards. This landmark judgment, which upheld capital gains tax on Tiger Global's Flipkart share sale, has prompted companies to urgently reassess their vulnerability to potential tax reassessments and penalties related to past investments.
Rethinking Tax Residency Certificates and DTAA Protections
At the heart of the Supreme Court's decision is a crucial clarification regarding Double Tax Avoidance Agreements (DTAAs). The court has established that merely possessing a Tax Residency Certificate (TRC) from a jurisdiction with which India has a DTAA is no longer considered conclusive evidence for claiming tax exemptions. This represents a fundamental shift in how tax authorities will evaluate cross-border investment structures moving forward.
Indian tax authorities now have the explicit right to examine whether entities established in DTAA jurisdictions genuinely conduct substantial business operations from those locations, or whether they primarily serve as conduits for routing investments to take advantage of treaty benefits. This "lifting of the corporate veil" approach leaves many investment structures potentially exposed to unexpected tax liabilities.
Growing Market for Tax Indemnity Insurance
Sushant Sarin, Managing Director at Aon India and Head of Strategy & Commercial Risk Solutions, confirms a noticeable increase in demand for tax indemnity insurance covers. Entities that made investments through DTAA jurisdictions are particularly concerned about potential tax liabilities arising from insufficient proof of substantive business operations in those treaty countries.
"Funds that never purchased insurance at the time of investing have been jolted by the Supreme Court ruling," Sarin explained. "While insurance will be available in many cases, insurers may become more conservative when entities fail to satisfy the substance test, potentially leading to some capacity shrinkage in the market."
Tax indemnity policies typically cover six to seven years but can be extended through mutual agreement. These specialized insurance products generally cover:
- Tax liabilities identified by authorities
- Contest costs for legal proceedings
- Advance tax payments
- Interest charges on overdue taxes
- Penalties imposed by tax authorities
Expanded Scrutiny of Investment Structures
The Supreme Court's decision has broader implications beyond the specific Tiger Global case. Tax authorities are now expected to evaluate multiple aspects of investment structures, including:
- Whether entities maintain actual offices in DTAA jurisdictions
- The presence of skilled personnel involved in investment decisions
- Whether investment decisions are genuinely made by boards or management stationed in treaty countries
- How proceeds from investments are managed and distributed
"This means that similar investments from Mauritius and other DTAA countries that have entered India are now up for evaluation," Sarin emphasized. "If scrutiny reveals investments were routed through DTAA entities with only TRCs as documentation, gains from such investments could become taxable, potentially including interest and penalties."
Limited Insurance Market and Underwriting Challenges
While tax liability insurance is technically available in India, the complexity of these products means underwriting typically occurs outside the country. Currently, only a handful of insurance providers offer tax indemnity plans, including Tata AIG General, HDFC ERGO, and Liberty Insurance. Even Tata AIG, the largest player in this space, usually underwrites policies through its London office in the Lloyd's marketplace.
The Tiger Global case specifically involved Mauritian entities that sold Flipkart Singapore shares to Walmart for $1.6 billion in 2018. While the Delhi High Court initially upheld Tiger Global's tax exemption claim under the Mauritius tax treaty, the Supreme Court overturned this decision, establishing that real control of the Mauritian entities lay with the US parent company.
Broader Trend: Protecting Overseas Investments
The increased demand for investment-related insurance coincides with a broader surge in interest to protect overseas investments against geopolitical volatility, tariff risks, and sanctions. Insurance advisory and law firms report a 25-40% increase in client queries over the past year as companies seek guidance on:
- Structuring comprehensive insurance policies
- Aligning M&A and joint venture contracts with policy triggers
- Negotiating coverage for diverse assets including infrastructure, energy, manufacturing, shipping, aviation, and data centers
"Clients are seeking integrated legal advice on structuring global operations, investments, and contracts that anticipate jurisdictional, regulatory, and policy variables," said Paridhi Adani, Partner and Head of the Ahmedabad office at Cyril Amarchand Mangaldas. "This is becoming standard practice for Indian companies with international footprints looking to safeguard operations against geopolitical volatility."
Political Risk Insurance Gains Prominence
Political Risk Insurance (PRI) is increasingly becoming a standard requirement in deal structuring, similar to Warranty & Indemnity (W&I) insurance. In cross-border mergers and acquisitions, buyers are utilizing PRI to mitigate "closing risk"—the concern that regulators might block deals or alter terms after signing.
Rohit Jain, Managing Partner at Singhania & Co., noted that industry data for 2024-25 shows the global PRI market growing at over 7% annually. Additional covers such as "contract frustration" insurance to protect against non-payment by state-owned clients are also gaining traction, as demonstrated by cases like GMR Group's exit from the Maldives airport project.
Customized Solutions for Diverse Industries
Companies showing the greatest interest in these protections include those with high-value physical assets, capital deployment intersecting with regulation, or deep integration into international trade flows. This encompasses infrastructure developers investing in emerging markets, manufacturing companies with geographically dependent global supply chains, shipping companies, aviation firms, and commodities trading companies.
"There is higher interest, more enquiries, followed by more in-depth discussions for customizing credit insurance to suit client requirements," Aon's Sarin observed. "Small and medium enterprises in particular are exploring new risk mitigation solutions, including advisory support related to credit protection, trade disruption, and geopolitical volatility."
Legal Precision in Insurance Contracting
Law firms are playing a crucial role in ensuring insurance contractual terms are unambiguous and comprehensive. This involves minimizing exclusions, clearly defining events with financial and business impacts, ensuring payout alignment with local jurisdictions, and strictly aligning deal terms with insurer policy triggers.
Ashima Obhan, Senior Partner at Obhan & Associates, explained: "Clients are concerned not only about physical assets abroad but also about contractual rights, receivables, and cross-border investments that could be impaired by sudden geopolitical shocks. Increasingly, cross-border M&A and joint venture agreements are being negotiated alongside insurance policies to ensure deal terms align with insurer coverage."
This comprehensive approach includes advising on policy wording, bridging coverage gaps, and preparing clients for potential disputes with insurers—creating a more robust framework for protecting international investments in an increasingly volatile global landscape.
