Nepal government’s victory in the tax case filed by Ncell

The government of Nepal has won the case filed by Ncell in the International Center for Settlement of Investment Disputes (ICSID) under the World Bank.

Ncell and its parent company Aziata Investments (UK) filed an application for arbitration in ICSID on May 20, 2019 against the capital gains tax ruling by the Supreme Court of Nepal and against the Government of Nepal.

After this application, the Arbitration Council formed by ICSID of the World Bank on June 26th, i.e. 9th June 2023, decided in favor of the government in the case and won the Sarkal case.

After the decision, Nepal will not have to pay the 420 million US dollars, which is about 55 billion Nepalese rupees, as well as the interest and fines claimed by Ncell.

Ncell’s claim was that since the government imposed a tax of 420 million dollars that it did not have to pay, it had to pay 16 percent interest and penalty until the case was decided. Advocate Ji said.

He further said, ‘After winning the case, Nepal has to pay that amount, it has also been established in the international community that Nepal is a law-abiding country.’

After receiving the request for arbitration in ICSID, the decision to pay a fine to Nepal was also made because it did not respond in time, did not appoint an arbitrator on its behalf, and so on.

In this arbitration process, it was seen that Nepal did not comply with some of its obligations, Nepal had ignored it for a long time at the beginning. He has paid a fine to Nepal saying that doing so is a violation of international law’, he said.

Law Ministry Joint Secretary Phanindra Gautam informed that such fine would be 40 to 50 million Nepalese rupees. He said, ‘If Nepal had not ignored the request for arbitration, it would not have had to pay any money.’

Advocate Ji said that the government’s victory in this petition is a great achievement when no such case has been filed against the Nepalese government in the international court so far.

“The government of Nepal has won a big case, this is very important, it has established that Nepal will not tax investors illegally, and the investment environment in Nepal is good,” he said.

In addition to this, he said, this case will also help to resolve the legal ambiguity in Nepal regarding capital gains tax. “There are cases of other companies in Nepal regarding capital gains tax, it has also decided the principle regarding those cases”, he said.

Once it is established that the legal process, tax rate etc. are applied legally when investing in Nepal, it also helps other companies who want to come here. “It will also make a very important contribution in terms of bringing in foreign investment in Nepal,” said Jisi.

“Ncell and Aziata had accused Nepal of regulatory harassment, lack of an investment-friendly environment, serious refusal to give justice, not treating the companies fairly and equitably,” Phaninder Gautam, joint secretary of the Ministry of Law said, “all those allegations have been rejected by the ICSID Arbitration Council. . This has proved that Nepal is a law-abiding and investment-friendly country.’ He also said that winning such a big case in international arbitration is a great achievement for the government.

Advocate Semant Dahal, who has worked on the defense in this case, says that now Nepal and people working in the legal field in Nepal are able to defend serious international legal disputes.

The decision of this case has established more jurisprudence regarding the fair and just treatment that the state should provide to foreign investors in investment treaty and arbitration cases, the question of whether or not the investor has been deprived of a fair judicial process, whether or not the state has discriminated against the investor, etc. He said.

What was Ncell’s case?

Reynolds Holdings, which has 80 percent shares in Ncell, had 100 percent shares in Norway-based Teliayasonera Norway Nepal Holdings. He sold that share to Aziata 9 UK Limited of Britain on 29th of Chait 072 for 1 trillion 44 billion 78 crore 25 lakh 6 thousand rupees. Ncell paid some part of the capital gains tax due to such transactions, but said that it does not have to pay more because it is a foreign transaction.

The dispute on this subject has reached from the Supreme Court of Nepal to ICSID. Ncell and Aziata claimed that they do not have to pay capital gains tax because they do not have business in Nepal, but the Supreme Court of Nepal ruled that capital gains tax should be paid in Nepal even if they do business abroad and the responsibility of paying that tax lies with Ncell and Aziata Limited. Ncell and Aziata went to ICSID against that decision.

Before that, Ncell had paid 9 billion 97 crore rupees on 073 Baisakh 26 and 11 billion 578 million rupees on 074 May 21 as advance payment of capital gains tax of that transaction. Similarly, 2 billion 262 million was paid for late fees.

But Dr. Ncell did not pay the capital gains tax in full. Dwarikanath Dhungel filed a writ against it in the Supreme Court. The Supreme Court issued a writ and ordered that a new tax be assessed and collected within three months, considering the tax submitted by Ncell.

Based on that, the Big Taxpayer Office had reduced the tax paid earlier on 03 Baisakh 076 and determined an additional 39 billion 66 million 84 thousand 815 rupees to be paid. After the Supreme Court ruled that Ncell and Aziata should collect the remaining capital gains tax due on purchase and sale, the two companies went to international arbitration against it.

They claimed that the decision was against the Investment Promotion and Protection Agreement 9BIT0 signed between Nepal and the United Kingdom and Northern Ireland on March 2, 1993. Ncell filed a request for arbitration through Herbert Smith Freehills, an international law firm headquartered in the UK.

They claimed that in addition to Nepal’s violation of BIT, various agencies and officials of the state are arbitrarily trying to collect capital gains tax that Ncell and Aziata do not have to pay. Aziata UK stated that it had indirectly bought the majority ownership of Ncell and that there was no capital gain to Ncell or Aziata in the transaction.

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