Kathmandu, December 19
An international court has directed the Nepal government not to impose capital gains tax on Ncell buyout deal for the time being – a decision that could bring the process of collecting Rs 22.4 billion from the largest private telecom company to a grinding halt.
The International Centre for Settlement of Investment Disputes today issued an interim order directing the government, including the Inland Revenue Department and Large Taxpayers’ Office, not to “take any steps” to enforce its decision to collect Rs 22.4 billion in outstanding capital gains tax, including interest and penalties, from the sale of Ncell by TeliaSonera Norway to Axiata UK. Axiata had acquired 80 per cent stake in Ncell for $1.4 billion in April 2016.
The interim order was issued on the basis of arbitration proceedings initiated by Axiata Investments (UK) and Ncell against the Nepal government.
“The ICSID Convention is not clear on whether interim measures will have binding effect. But previous tribunals have made provisional measures binding for parties involved in ICSID cases,” said Semanta Dahal, a lawyer, who has been closely following the case.
This indicates the government may have to suspend its plan to collect outstanding taxes from Ncell.
It is not known when the US-based court will issue a final order in the case.
“If the final verdict is issued in line with today’s order, the Nepal government will not only be barred from collecting outstanding capital gains tax but will have to reimburse whatever capital gains tax it has collected from Ncell in the past,” said Dahal.
The final verdict issued by an international arbitration court, according to Dahal, will be binding for the Nepal government and failure to enforce it may prompt the court to seize and auction Nepal’s assets abroad to compensate the plaintiff.
Axiata Investments (UK) and Ncell moved the international dispute settlement court in April after Large Taxpayers’ Office asked Ncell to foot the capital gains tax bill of Rs 62.63 billion on Ncell buyout deal. At that time, Ncell had already paid Rs 23.57 billion to the government, but tax authorities were exerting pressure on the company to settle outstanding tax liability of Rs 39.06 billion immediately. Since then, the company has moved the Supreme Court and outstanding tax liability has been reduced to Rs 22.4 billion.
Although a part of the outstanding tax has already been paid, Axiata and Ncell have been saying that “the act of imposing CGT” in connection with the Ncell buyout deal “contravenes Nepal’s international law obligations under the 1993 Nepal-UK Bilateral Investment Treaty”. “This means Axiata and Ncell are not happy that the CGT has been imposed on buyers and not sellers, which is against the global practice.” This is the reason for moving the international court.
Axiata and Ncell have appointed Albert Jan van den Berg, a Dutch national, to represent them at the international court. Nepal was previously asked to appoint its own lawyer. But it did not do so. So, in accordance with Article 38 of the ICSID Convention, the chairman of the administrative council of the ICSID, appointed Paul Friedland, a US citizen, to represent Nepal in the legal case, says the ICSID website.
“This indifferent attitude towards appointing the lawyer has made Nepal’s position very weak,” said Dahal.
But the Large Taxpayers’ Office is not worried.
“The lawsuit refers to provisions in the 1993 Nepal-UK Bilateral Investment Treaty. But that treaty only covers issues related to investment, whereas the issue raised by Axiata and Ncell in the international court is related to taxation,” said Jhalak Ram Adhikari, chief tax administrator at the LTO. “International courts cannot intervene in taxation affairs of a sovereign country. So, we will follow the Supreme Court’s order to collect taxes from Ncell.”
A version of this article appears in print on December 20, 2019 of The Himalayan Times.