LTO determines Rs60.71b as capital gains taxThe Large Taxpayers’ Office (LTO) on Tuesday concluded that the government needs to recover Rs60.71 billion in capital gains tax from the Ncell buyout deal.
The Large Taxpayers’ Office (LTO) on Tuesday concluded that the government needs to recover Rs60.71 billion in capital gains tax from the Ncell buyout deal. Amid pressure from several stakeholders, the tax authority has finally set an amount, giving clarity to the government over the tax issue that had been protracted ever since Swedish company Telia sold stakes in Ncell to Malaysian company Axiata.
Also on Tuesday, the tax authority served a notice on Telia—second time in a month—to clear its tax liability emanating from the profit generated from the sale of Ncell. While the letter dispatched in the first week of June had asked Telia to clear the due tax amount based on its own assessment, the fresh notice has quoted Rs60.71 billion to be settled out of the mega deal.
According to an LTO source, the notice was dispatched to Telia via email on Tuesday evening. A copy of the notice will be formally dispatched through international courier service provider DHL on Wednesday. “Sweden-based Telia, last time, had told us that they would forward our message to Telia Norway. However, we have corresponded Telia Sweden that the parent company is liable to settle the tax issue in Nepal,” the source said.
Telia Company is trying to rope in its Norway-based company, as Nepal has signed Avoidance of Double Taxation (DTA). Authorities in Nepal, however, have stated that the capital gains tax is supposed to be paid in Nepal, as profit was gained from sales of the company established in Nepal.
In a record deal struck in April 2015, Malaysia’s Axiata bought Reynolds Holding, which held a majority stake in Ncell, from the Swedish-Finnish company Telia at an enterprise value of $1.03 billion (approx Rs103 billion). Reynolds Holding was Telia’s wholly-owned subsidiary, registered at Saint Kitts and Nevis—a tax haven. The tax authority has estimated that Telia is liable to pay Rs35.91 billion in capital gains tax in Nepal, referring to the law has made it clear that 25 percent of the profit made from the buyout deal must be deposited in the form of capital gains tax.
Since Telia failed to deposit the tax amount at the time of sales of the asset, the taxman here holds the right to impose a fine equivalent to 50 percent of the tax amount. On top of this, the taxman can also levy 15 percent interest on the due tax amount. Based on this, Telia will have to pay Rs18.06 billion in fine and around Rs6.73 billion in interest.
With Ncell already paying 15 percent of the tax on behalf of Telia, the company may not have to bear entire financial burden. Ncell has so far deposited Rs23.6 billion of which Rs9.97 billion was deposited in May 2016 and the remaining Rs13.6 billion on the first week of June, days after the Commission for Investigation of Abuse of Authority arrested Inland Revenue Department Director General (IRD) Chudamani Sharma on the charge of misappropriating revenues and settling taxes in a questionable manner. Of this amount, Rs2.1 billion covered the fine imposed by the tax office on the company for late payment of tax due.
Now, Telia will have to justify its position to the LTO within 15 days from the day it obtains a copy of the LTO decision. If not, the tax authority will start charging fine on the basis of additional delay. Likewise, Telia holds the right of appealing to the IRD director general for reassessment of tax. The company then can appeal for a revenue tribunal before moving to the Supreme Court for a final verdict. According to a source at the LTO, a Supreme Court decision will be considered to be final as Nepal’s tax law remains mum on international arbitration.
Tax authorities have stated that Ncell has a reserve of around Rs57 billion in Nepal as of fiscal year 2015-16, and escrow account worth $160 million (Rs16 billion) has been maintained overseas and that the authority may recover tax if Telia fails to comply with the government directive.