Kathmandu, April 30

Ncell and its parent company Axiata Group (UK) have submitted a request for arbitration with the International Centre for Settlement of Investment Disputes (ICSID) against the government of Nepal, regarding the capital gains tax (CGT) levied by the Nepali authority on Ncell buyout deal.

Publishing a notice on its website, Axiata announced that a request for arbitration was filed on April 26 with the ICSID pursuant to the agreement dated March 2, 1993 between Nepal and the United Kingdom of Great Britain and Northern Ireland for the promotion and protection of investments.

As per Axiata, the government of Nepal has already been notified of the request.

“Axiata UK and Ncell’s claims as set out in the request relate to Nepal’s conduct in contravention of its international law obligations under the bilateral investment treaty,” reads the announcement from Axiata.

In particular, the claims relate to Nepal’s conduct in imposing capital gains tax in connection with Axiata UK’s acquisition of 100 per cent of the shares of Reynolds Holding Ltd, which owns 80 per cent of the shares of Ncell, as per Axiata.

Following a verdict from the Supreme Court that Axiata and Ncell were required to pay applicable taxes out of the Ncell buyout deal, the Large Taxpayers’ Office, on April 16, had officially determined Rs 62.63 billion as applicable capital gains tax on the deal and ordered Ncell to deposit Rs 39.06 billion within seven days, as the telecom firm has already deposited Rs 23.57 billion as CGT and late fee.

However, Ncell had moved the apex court against the LTO a week later, claiming that it needed to pay a capital gains tax of only Rs 14.5 billion, and not Rs 39.06 billion as determined by LTO for the sale of its shares to Axiata Investment UK Ltd. Ncell argued that the LTO had violated due process while reassessing its tax liability, as it did not give Ncell a chance to present its argument as provisioned in the Income Tax Act.

A few days later, the Supreme Court had issued a temporary stay order against LTO’s decision to levy Rs 39.06 billion capital gains tax on Ncell.

Meanwhile, Inland Revenue Department (IRD) officials said that the government is yet to be notified on this matter formally.

“If it is the case, we will take necessary steps as prescribed in the Nepal-UK bilateral laws,” said Bishnu Nepal, director general of IRD.

Both Ncell and lawyers dealing with the tax issue of Ncell were reluctant to comment on the issue.

Request filed in pursuant to Nepal’s agreement with the UK and Northern Ireland