What has emerged from the SC judgement in the Tiger Global case is that a tax residency certificate (TRC) is by itself no longer conclusive evidence for claiming tax exemption under a Double Tax Avoidance Agreement (DTAA). The SC has said that merely relying on an entity in a jurisdiction with which India has a DTAA is not sufficient. In such cases, Indian tax authorities have the right to lift the veil of the entity and check whether the entity exists for the purpose of routing investments to take advantage of the DTAA, or whether it carries out business in substance from that jurisdiction, 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. DTAA allows companies and investors to avoid being taxed twice on the same income across two countries, facilitating cross-border investments.
Tax indemnity policies are typically for six-seven years, but can be taken for a longer period. Typically insurance is taken before the conclusion of the deal and the policy period can be extended on mutually agreeable terms, wherein the insurance policy pays for the covered tax, contest cost, advance tax payment, covered interest and covered penalties, among others.
“Funds that never bought insurance at the time of investing have been jolted by the SC ruling, and insurance will be available for them in many cases,” Sarin said, adding that in cases where entities don’t satisfy the test of substance, insurance capacity may be difficult to muster as insurers may become more conservative. “There will be some shrinkage in capacity to that extent.”
Tax authorities will now start evaluating other aspects such as whether the entity in question has offices in the jurisdiction, requisite skilled talent including those involved in the investment decisions. Further, they will try to assess whether the investment decisions are being made by the board or management stationed in the DTAA jurisdiction or are just being rubber-stamped through that country, and how the proceeds from such investments are getting further managed.
“This means that similar investments from Mauritius and other DTAA countries, which have come into India are up for evaluation,” Sarin said, adding that if scrutiny by the Indian tax authorities reveals that there are investments which got routed via a DTAA entity with just a TRC, then gains from such investments can be taxed. “There is a risk for all such similarly placed investments of having to pay tax plus interest and penalty.”
While tax liability insurance is available in India, typically underwriting does not happen in India because of its complexity. Currently, only a handful of insurance companies such as Tata AIG General, HDFC ERGO, Liberty Insurance offer such tax indemnity plans, but even the largest player, Tata AIG, usually underwrites policies through its London office in the Lloyd’s marketplace.
In 2018, the Mauritian entities of Tiger Global sold shares of Flipkart Singapore (which owned Flipkart India) to Walmart for $1.6 billion. Tiger Global’s request for a tax exemption citing the Mauritius tax treaty was rejected by the tax department, but upheld by the Delhi High Court. However, the SC overturned the HC verdict, making Tiger liable to pay tax in India.
In its 15 January ruling, the apex court bench of justices J.B. Pardiwala and R. Mahadevan said the real control of Tiger Global’s Mauritian entities lay with its US parent, backing the tax department’s position. Once the mechanism of using Mauritian entities is found to be illegal or sham, it ceases to be “a permissible avoidance” and becomes “an impermissible avoidance” or “evasion”, the SC ruled.
Companies that have made use of the India-Mauritius DTAA for their investments may be concerned that the tax authorities could review their tax liabilities.
“There are more enquiries coming in because entities who weren’t aware that such policies exist are also looking into them now. These are typically bespoke policies and are drafted based on the deal agreement and tax consultant’s opinion, so whatever exposure is mentioned by the tax consultant, is generally included in the policy cover,” said Vibhaw Kumar, practice head – liability and miscellaneous insurance, Anand Rathi Insurance Brokers.
If an entity is already facing tax disputes, it is considered a ‘building on fire’ in insurance parlance, because the probability of a tax or other expense is significantly higher, Kumar said, adding that in such a scenario, the cost of underwriting for the insurer could go up, resulting in higher premiums.
Demand to protect overseas investments
The rise in demand for investment-related insurance comes just when there is a broader surge in interest to protect overseas investments, amid geopolitical volatility and risks from tariffs or sanctions. Rising war-related risks and global supply chain disruptions due to sanctions and US-imposed tariffs have driven more companies to seek integrated insurance and legal advice against geopolitical risks to protect overseas assets.
Insurance advisory and law firms that Mint spoke to said that client queries have risen 25–40% over the past year, as companies seek guidance on structuring policies, aligning mergers and acquisition (M&A) and joint venture (JV) contracts with policy triggers, and negotiating coverage for infrastructure, energy, manufacturing, shipping, aviation, and data-center assets.
“Clients are seeking integrated legal advice on structuring global operations, investments and contracts in a way that anticipates jurisdictional, regulatory and policy variables,” said Paridhi Adani, partner (head – Ahmedabad office), Cyril Amarchand Mangaldas, adding that this is especially becoming a standard practice for Indian companies with international footprints that are looking to safeguard their global operations against geopolitical volatility.
Most enquiries pertain to protecting international investments, supply chains and cross‑border transactions from the risk of sanctions exposure, trade restrictions and conflict‑driven disruptions, according to industry experts.
“Political risk insurance (PRI) is becoming a condition precedent in deal structuring, much like warranty & indemnity (W&I) insurance. In cross-border M&A, buyers are using PRI to mitigate ‘closing risk’—the fear that a regulator might block the deal or alter terms post-signing,” said Rohit Jain, managing partner, Singhania & Co. He said industry data for 2024-25 showed the global PRI market is growing at over 7% annually.
Other covers such as ‘contract frustration’ insurance to protect against non-payment by state-owned clients have also started gaining traction, Jain added, citing the example of GMR Group’s exit from the Maldives airport project.
Companies with high-value physical assets, capital deployment and regulation intersect, or those deeply integrated into international trade flows such as infrastructure developers investing in emerging markets, manufacturing companies with global supply chains dependent on specific geographies, shipping companies, aviation, and commodities trading companies are showing the greatest interest in buying such protections.
“There is higher interest, more enquiries, followed by more in-depth discussions for customizing credit insurance to suit client requirements,” Aon’s Sarin said. Small and medium enterprises (SMEs) in particular are exploring new risk mitigation solutions, including new risk transfer solutions or advisory support related to credit protection, trade disruption and geopolitical volatility, he added.
Insurance consultants are helping clients diversify and grow their business by providing credit risk solutions. This includes securing against risks arising from the need to quickly modify or customise solutions to the demands of new geographies and new clients, protecting directors and senior officials from regulatory and managerial risks from new jurisdictions where operations are being expanded into, and safeguarding overseas manufacturing or other physical assets till the time they become operational.
Law firms are making sure that the contractual terms for the insurance are “unambiguous and water tight” through minimising exclusions, clearly defining any ‘events’ that may have financial and business impacts, ensuring payouts are in line with local jurisdictions, and making sure that deal terms align strictly with the triggers defined in the insurer’s policy wording.
“Clients are not only concerned 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 JV agreements are being negotiated in parallel with insurance policies, so that deal terms are aligned with what insurers are willing to cover,” said Ashima Obhan, senior partner, Obhan & Associates.
This also includes advising on policy wording, bridging coverage gaps, and preparing clients for potential disputes with insurers, she added.
