The Buyer's Burden: What the Tiger Global Ruling Means for Anyone Paying a Non-Resident Seller

Most commentary on the Supreme Court's Tiger Global ruling has focused on the seller's eligibility for treaty benefits. However, the ruling also has important implications for buyers responsible for withholding tax when making payments to a non-resident.

Under Indian tax law, the person responsible for making the payment must assess whether the payment is chargeable to tax in India and whether tax is required to be deducted at source. This obligation can arise in a share purchase, as well as in payments involving royalties, fees, or other taxable income.

If the buyer fails to deduct tax where required, it may face tax demands, interest, and related consequences. The Tiger Global ruling reinforces the importance of assessing the seller's treaty position and the underlying facts before making a withholding decision.

What Is the Buyer’s Withholding Tax Obligation

Before releasing payment to a non-resident seller, the buyer should assess:

• Whether the payment is chargeable to tax in India
• Whether tax is required to be deducted at source
• Whether the seller is eligible for relief under an applicable tax treaty
• What documentation supports the withholding position
• Whether a lower or nil withholding certificate is available

The buyer does not need to establish that the seller’s treaty claim will fail. However, it should be able to demonstrate that its withholding decision followed a careful assessment of the available facts and applicable law.

Why Traditional Tax Safeguards May Not Be Enough

In a typical cross-border transaction, buyers relied on a Tax Residency Certificate (TRC), tax opinion, nil or lower withholding certificate, and contractual indemnity.

These safeguards still have value, but they should not replace an independent assessment of the seller’s treaty position.

• Tax Residency Certificate: A TRC establishes tax residency in the issuing jurisdiction. It does not, by itself, establish where an entity's effective management and control actually lie.
• Tax opinion: A tax opinion based mainly on a TRC and Circular 789 may need reconsideration if it does not examine the seller’s commercial substance and decision-making arrangements.
• Nil or lower withholding certificate: A nil or lower withholding certificate can provide greater certainty, but obtaining one is not always straightforward. The Tiger Global dispute began after the tax authorities declined the entities' request for nil withholding certificates.
• Tax indemnity: A tax indemnity can provide contractual protection in a share transaction. However, its practical value depends on the seller's ability to meet the obligation if a tax demand arises. A fund that has distributed proceeds and wound up may provide limited recourse.

The distinction between holding supporting documents and establishing a defensible treaty position is increasingly important.

What Buyers Should Examine Before Paying a Non-Resident Seller

A buyer's international tax due diligence should go beyond checking whether the seller holds a valid TRC. It should examine the entity's actual operations, management, and decision-making arrangements.

This is particularly relevant when the seller is an offshore holding company or investment fund claiming treaty benefits.

Key areas to examine include:

• Director residency: Where do the directors reside, and where do they exercise their responsibilities?
• Board meetings: Where are board meetings held, and where are significant investment decisions made?
• Banking authority: Who operates the entity's bank accounts and approves financial transactions?
• Employees and premises: Does the entity maintain its own employees, office, and administrative infrastructure?
• Business activities: Does it conduct independent business activities, or does it primarily hold the Indian investment?
• Management and control: Where are strategic and operational decisions actually made?

These checks help buyers assess whether the seller has genuine commercial substance in the jurisdiction where it claims tax residency.

Nexdigm’s international tax and regulatory advisory services cover cross-border tax matters, treaty interpretation, and transaction structuring. Its work on assessing permanent establishment (PE) exposure and Place of Effective Management (POEM) also reflects the importance of examining where a foreign entity's business is actually managed.

How Buyers Can Manage Withholding Tax Risk

Once the buyer has assessed the seller's treaty position, it should determine the appropriate withholding approach. The approach depends on the nature of the payment, its taxability in India, and the relief available under the applicable treaty.

1. Obtain a Lower or Nil Withholding Certificate

Where appropriate, the buyer or seller may approach the assessing officer for a determination of the applicable withholding rate. A certificate can provide greater certainty before the payment is made.

2. Consider Escrow or Payment Holdbacks

Buyers may retain part of the consideration through an escrow or holdback arrangement. This can provide a potential source of recovery if a tax dispute arises, subject to the transaction documents and applicable law.

3. Withhold at the Applicable Domestic Rate Where Appropriate

Where treaty eligibility remains uncertain, and no appropriate lower-withholding determination is available, withholding at the applicable domestic rate may be a more conservative approach. The buyer must still assess the payment's taxability and the relevant provisions.

For buyers assessing withholding tax on payments to non-residents, applicable tax treaties can affect the withholding rate and the documentation required under India's withholding tax framework.

Form 145 and Form 146: Documentation for Cross-Border Payments

Withholding tax compliance also depends on accurate remittance documentation. Certificates and declarations supporting a cross-border payment should reflect the tax analysis actually performed, rather than rely on standard templates.

Under India's Income-tax Act, 2025, effective April 1, 2026, Form 145 is used to furnish information before remitting certain payments to non-residents or a foreign companies. Form 146 is the accountant's certificate required in specified cases where a taxable remittance exceeds ₹5 lakh in a tax year and no assessing officer certificate has been obtained.

Buyers should prepare supporting documents before closing. These may include the seller's TRC, treaty declarations, substance evidence, transaction documents, and the basis for determining the withholding rate.

Nexdigm’s Easy Remittance Tool (ERT) brings the Form 145 and Form 146 documentation process into a structured workflow.

How Nexdigm Can Help

Nexdigm helps buyers assess withholding tax obligations, evaluate treaty eligibility and substance-related risks, and prepare defensible documentation for cross-border payments.

Our international tax and regulatory advisory team supports buyers across treaty analysis, transaction structuring, withholding tax assessments, Form 145 and Form 146 documentation, and remittance compliance.

Frequently Asked Questions About the Tiger Global Ruling

1. Why does the Tiger Global ruling matter to buyers?

It reinforces the need to examine treaty eligibility beyond a seller's TRC. Buyers making taxable payments to non-residents should independently assess their withholding obligations.

2. Is a Tax Residency Certificate sufficient to claim treaty benefits?

Not necessarily. A TRC remains important, but tax authorities may also examine commercial substance, management, and control before accepting a treaty claim.

3. Can a buyer face consequences for not deducting tax?

Yes. Where tax was required to be deducted but was not, the payer may face tax demands, interest, and other applicable consequences.

4. Can an indemnity protect a buyer against withholding tax demands?

An indemnity can provide contractual recourse, but it does not eliminate the buyer's statutory withholding obligations. Its practical value also depends on the seller's ability to pay.

5. What is the difference between Form 145 and Form 146?

Form 145 is used to furnish information before remitting certain payments to non-residents or foreign companies. Form 146 is the accountant's certificate required in specified cases involving taxable remittances above ₹5 lakh.