Controversial businessman Ajeya Raj Sumargi has refused to pay Rs 4.31 billion in capital gains tax in relation to a seven-year-old deal in which TeliaSonera had bought 75 percent shares from Sumargi’s Nepal Satellite Telecom, the Inland Revenue Department has said.

After discovering that 75 percent of equity shares in Nepal Satellite Telecom owned by Sumargi, operating under the brand ‘Hello Nepal’, had been transferred to TeliaSonera at capital gains of Rs 5.63 billion, the revenue department had initially attempted to recover Rs 1.40 billion in capital gains tax in April. Interest had accrued on the original amount since the date of transaction. Sumargi had routed the transaction through Airbell Services, an offshore company based in Cyprus.

The Inland Revenue Department said in a statement on Friday that a letter seeking payment of accrued tax and interest was emailed to Nepal Satellite Telecom on May 15.

“However, the company refused to acknowledge the letter, following which, the department resent the email and a hard-copy of the letter to the company's address on May 17,” said the revenue department.

Sumargi’s transactions over the years have landed in controversy and authorities have been looking into them, suspecting money laundering.

In January, an investigation led by the Centre for Investigative Journalism Nepal and the International Consortium of Investigative Journalists revealed that Sumargi had laundered money through Airbell and two other offshore companies — Zhodar and Tipologia — on the pretext of Foreign Direct Investment. According to the report, Sumargi has transferred a total of $63.2 million in nine installments from Airbell to companies he owned in Nepal.

The report ‘NepaLeaks 2019’ found that Upendra Mahato, Niraj Govinda Shrestha, Arjun Sharma, Sumargi and 70 other Nepali nationals had set up offshore companies in the British Virgin Islands, Cyprus, Egypt and Belarus to launder money.

Sharma is the director of Muktishree Pvt Ltd, a company that Sumargi owns. These businessmen were found to have exploited tax regimes and broken Nepal’s laws using the offshore companies to launder money in Nepal and repatriate profits to foreign countries.

These companies — Zhodar, Airbell and Tipologia — have ties with TeliaSonera, the company that left Nepal after evading taxes in the 2015 Ncell buyout deal, according to the NepaLeaks report. In 2015, TeliaSonera had decided to sell its 60.4 percent stake in Reynold Holdings, which owned Ncell, to the Malaysian telecom firm Axiata. In 2016, Axiata completed its Ncell acquisition.

In 2010, Zhodar Investment was registered in the British Virgin Islands with Sharma as an investor. In 2011 and 2012, 1,510 unit shares of Zhodar Investment were sold to TeliaSonera Asia Holdings.

Again, in 2013, Zhodar transferred shares to World Wide Incredible, a company also registered in the British Virgin Islands, and the same day, World Wide joined Airbell Services as a partner. Then, after eight years of operations in Nepal, TeliaSonera, which had cross-holdings in those offshore companies, sold Ncell.

In 2018, a government report had also uncovered Sumargi's involvement in shady business deals and had determined that he had made 42 fund transfers worth over $118 million from offshore tax havens.

The money entered Nepali banks, particularly Nabil and Nepal Investment Bank, in the form of loans, starting in January 2008 until 2013. The beneficiaries of 97 percent of the funds remitted from abroad were four companies that Sumargi owned — Nepal Satellite Telecom, Muktishree Pvt Ltd, Muktishree Cement and Muktishree Telecom.

In between, equity shares of Nepal Satellite Telecom were transferred to TeliaSonera by Airbell in chunks from 2011 to 2012.

In December 2018, Nepal Rastra Bank had frozen Sumargi’s account at Nepal Investment Bank. The central bank froze Rs 840 million ($7.5 million), the amount remitted to the company’s account as foreign investment, on the grounds that the source of this amount had not been disclosed.

But the Supreme Court issued an interim order asking the central bank to unfreeze Sumargi’s account. The controversial businessmen then withdrew the frozen funds before the Supreme Court repealed the interim order in January and asked the banks to maintain the account “as it was”.

The banks are still struggling to retrieve the money that Sumargi withdrew when the interim order was in effect.

Meanwhile, Ncell and its parent company Axiata have approached the International Centre for Settlement of Investment Dispute, a World Bank body, claiming that Nepal’s conduct in relation to capital gains tax imposed on the Ncell-Axiata-TeliaSonera deal is against the Bilateral Investment Treaty between Nepal and the United Kingdom.

The companies — Ncell and Axiata — have also lodged a petition at the Supreme Court claiming the large taxpayers office has erroneously determined their tax liability at Rs 39.06 billion. The court has asked the authorities not to recoup capital gains tax from Ncell and Axiata for the time being.