Nepal Government Emerges Victorious in Capital Gains Tax Dispute with Ncell

Nepal Government Emerges Victorious in Capital Gains Tax Dispute with Ncell

In a significant legal victory, the Nepal government has emerged triumphant in its dispute with Axiata Group, the parent company of Ncell mobile telecommunications company. The International Centre for Settlement of Investment Disputes (ICSID) ruled in favor of the Nepal government, dismissing Axiata’s claims of injustice and unjustified taxes. This landmark case not only clears the doubt of international investors but also paves the way for improved investment prospects in Nepal.

In a long-standing legal battle, Axiata Group, the parent company of Ncell, filed a case with the ICSID in May 2019, seeking damages worth $500 million. The company alleged breach of the bilateral agreement, injustice, and unwarranted taxes imposed during its acquisition of Ncell. However, the recent ruling by the ICSID has ended the four-year case in favor of the Nepal government.

Phanindra Gautam, the chief of International Law and Treaty Agreement Division at the Ministry of Law, Justice and Parliamentary Affairs, confirmed the verdict in favor of the government. While the exact amount of compensatory damages is yet to be determined, it is expected to be a small price to pay compared to the magnitude of the problem that has now been resolved. The ruling also dispels the doubts of international investors that had arisen due to Axiata’s accusations.

Furthermore, the Nepal government is relieved from the burden of paying the demanded amount of Rs66 billion as capital gains tax. Axiata had sought the return of the tax amount levied by the government during its acquisition of an 80% stake in Ncell. However, the ICSID ruled that such payment was not necessary.

Initially, the Nepal government declined to participate in the legal proceedings. Nevertheless, in October of the same year, the ICSID appointed an arbitrator to advocate on behalf of Nepal, further pursuing the case. To represent itself effectively, the government engaged five prominent law firms and appointed renowned legal and tax experts.

This case marks the first instance where a Nepal-based company sought the assistance of an international organization for resolution.

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The dispute centers around Axiata Group’s acquisition of Reynolds Holdings, the owner of an 80% stake in Ncell. Axiata argued that the investment dispute should be settled according to British jurisdictions, as the acquisition was made through its UK-registered subsidiary, Axiata Investments. However, the Nepal government contended that the case did not fall under international jurisdiction, citing the use of a shell company based in a tax haven to evade taxes and avoid reporting the acquisition to the Nepali authorities.

The controversy surrounding the tax evaluation of the deal added fuel to the dispute. Audit firms conducted assessments, and the Supreme Court ruled in favor of the government in February 2019. The court deemed Axiata and Ncell responsible for the taxes as the original owner, Telia Sonera, had already left Nepal.

Following subsequent legal battles, the tax amount was recalculated, and the Large Taxpayers’ Office determined an outstanding tax of Rs21.1 billion. However, Ncell continued its fight at the international dispute settlement body.

With the recent decision by the ICSID, the long-standing dispute has been finally settled, providing resolution at both the national and international levels. This outcome has not only secured the Nepal government’s victory but also established a positive precedent for future investment disputes.