According to the official, with the Malaysian company also demanding as much as 16 percent interest till the possible payment for damages and arbitration expenses, losing the case could have increased the government’s liability by as much as $500m or Rs 66bn.
Axiata had contended that creating a tax liability for Ncell instead of TeliaSonera which had sold its share to Axiata breached fair and equitable treatment to be accorded to the foreign investors as per the Bilateral Investment Treaty between Nepal and the United Kingdom. Although Axiata is headquartered in Malaysia, it argued that the investment dispute must be settled as per the UK jurisdictions since its UK-based subsidiary—Axiata Investments had acquired Reynolds Holdings, a company registered in the British Virgin Islands, which has an 80 percent stake in Ncell. “At the expense of around Rs 1bn, the government is saving around Rs 66bn which is a great achievement,” said the government official. “Moreover, the non-monetary gain is also huge from the verdict as it dismissed Axiata’s claims that Nepal does not treat foreign investors fairly and that there are regulatory hassles in Nepal, and there is a profit repatriation problem for foreign investors.” Initially, the government was reluctant to engage in legal fights with Axiata. So, Nepal didn’t choose any arbitrator to settle the dispute. In Oct 2019, the ICSID itself appointed an arbitrator to advocate on behalf of the Nepal government to pursue the case further. The government was contending that as the tax was imposed on Ncell based on domestic law, it is not subject to international dispute settlement. After consistent pressure from experts that the government’s apathy to engage in legal fights could result in serious defeat in international arbitration, the government became ready to engage in legal fights. The Nepal government appointed five law firms—UK-based Nepali-origin lawyer Surya Prasad Subedi’s Three Stone, Washington-based law firm Foley Hoag, US-based legal practitioner of Nepali origin Khagendra Kshetry’s Kshetry and Associates, Nepal-based law firms Prudential Law Associates and Abhinawa Law Chamber—to engage in a legal fight on the behalf of the government. Additionally, the government also appointed constitutional lawyer Bipin Adhikari and former finance secretary Vidyadhar Mallik as legal and tax experts. “By participating in the legal fight, Nepal could produce evidence that the Ncell has not faced mistreatment from the Nepali authorities,” said the government official. “This judgment of the international court has sent a message that the agreement between the Nepal government and Ncell has not been violated,” said Semanta Dahal of Abhinawa Law Chamber. “It also establishes the fact that tax can be levied if shares are traded outside the country of the company registered in Nepal.” The taxation controversy began with the exit of TeliaSonera, a Swedish-Norwegian company, from Nepal, by selling all of its 80 percent stakes to Axiata, in April 2016 at Rs 144bn. The buyout deal was done abroad as Axiata Investment (UK) purchased the Reynolds Holding company, registered at Saint Kitts and Nevis, a tax haven, which is the owner of Ncell, from TeliaSonera. The 54th annual report of the Office of the Auditor General became the turning point to drag Ncell into controversy related to tax evasion. The OAG in its report stated that the deal was taxable in Nepal as per Clause 57 of the Income Tax Act and stated that the government needs to raise Rs 32bn as CGT from the buyout deal worth Rs 144bn for an 80 percent stake. Then, the Large Taxpayers Office of the Nepal government determined Rs 60bn in CGT to Ncell. The Malaysian telecom giant went to the Supreme Court to challenge the decision but the court quashed the petition of Axiata before moving to ICSID.
