Confusion reigns over Ncell’s tax liability after international tribunal’s provisional orderInternational arbitration body’s ruling that Ncell does not need to pay any capital gains tax contradicts a ruling by Nepal’s Supreme Court.
A ruling in favour of Ncell by an international tribunal, which contradicts a ruling by the Supreme Court, has raised questions about whether the authorities would abide by the international or the local ruling. On Sunday, the Large Taxpayers’ Office sent a follow-up letter to Ncell, asking the private telecom company to pay outstanding capital gains tax in line with the Supreme Court order, ending speculation.
Ncell has missed the December 19 deadline to pay Rs22.44 billion in capital gains tax and fines from a three-year-old buyout deal between Teliasonera and Axiata, the current parent firm of the telecom company.
“Ncell has 15 days beginning Sunday to clear its dues,” said Jhalakram Adhikari, chief of the Large Taxpayers’ Office.
The tax office’s letter comes five days after an international tribunal ruled that Ncell does not need to pay capital gains tax as demanded by the Nepal government. The International Centre for Settlement of Investment Disputes, a body under the World Bank, on December 18, a day before the Nepal tax office’s initial deadline ended, issued a provisional order, staying the Nepal government and its agencies’ demand letter served by the Large Taxpayers’ Office to recover outstanding capital gains tax from Ncell.
According to Adhikari, the tax office followed the due process by sending a follow-up letter asking the company to pay its dues, and it is not concerned with what the international dispute settlement body has said.
“The government’s position is clear. The issue is tax, not investment as claimed by Ncell and its parent company when they moved the international dispute settlement body,” Adhikari told the Post. “We followed up as per existing laws and the Supreme Court verdict.”
On November 21, the Supreme Court gave its final verdict on the case, ruling that Ncell needed to pay Rs 21.10 billion in outstanding capital gains tax, substantially lower than the Rs39.06 billion determined by the tax authorities. Ncell has said that it is only eligible to pay Rs14 billion.
The UK-branch of Axiata had, in April, petitioned the international tribunal, requesting arbitration pursuant to the Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Nepal for the Promotion and Protection of Investments. Nepal is a signatory to the convention that established the International Centre for Settlement of Investment Disputes.
There is, however, confusion among legal experts regarding whether the provisional order from the international tribunal takes precedence over the Supreme Court. If the tax authority complies with the tribunal’s order, it will be ignoring the Supreme Court verdict, but if it follows the Nepal court’s verdict, it will not be adhering to its international obligations.
On December 20, Semanta Dahal, a corporate lawyer, wrote on Twitter: “ICSID convention is not itself clear about whether complying such interim order was a compulsion. But, past Tribunals have made it mandatory to implement its order.”
Lawyers say that this confusion perhaps would not have arrived had the government been more proactive in participating in the dispute settlement process at the tribunal. The government neither appointed an arbitrator nor a lawyer for the legal battle.
This, according to lawyers, resulted in a provisional order favourable to Axiata and Ncell.
“I have long been arguing that the government is not weak in this case,” Dahal told the Post. “But the government acted in such a way that it was playing football without a goalkeeper.”
According to lawyers, when Ncell challenged the tax assessment made by the tax authority at the Supreme Court, the company agreed to the case coming under the jurisdiction of Nepal’s legal system.
According to Gandhi Pandit, also a corporate lawyer, Nepal only needs to comply with such orders if the agreement between the Nepal government and the United Kingdom was endorsed by Parliament.
“In such cases, the provisional order would prevail over domestic laws,” Pandit told the Post. “Otherwise, domestic laws prevail.”
The Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Nepal for the Promotion and Protection of Investments was not endorsed by Parliament, according to lawyer Dahal.
However, Pandit said that the Supreme Court could review its decision in light of the tribunal’s order.
“If Ncell registers an application at the court, citing the provisional order, the Supreme Court may have to speak on the issue once again,” Pandit told the Post. “When investing in Nepal, Axiata had also agreed to honour Nepal’s laws.”
While the tax office has sent a letter to Ncell, it is not clear how the government will respond if the company fails to pay its dues.
“The concerned tax authority has already assessed Ncell’s liability as per the Supreme Court verdict,” said revenue Secretary Sishir Dhungana. “The tax will be recovered. We have not thought otherwise.”
An Ncell source told the Post that they were observing the tax authority’s steps and would respond accordingly.
Although the government didn’t participate by appointing an arbitrator and lawyers, it furnished its reply to the tribunal. In its reply, the government stated that the issue comes under the jurisdiction of Nepal’s legal system and the case was sub judice in Nepal’s Supreme Court.
“We argued that since the company itself sought legal remedy from the local court, it is within the jurisdiction of Nepal’s legal system,” said Sanjeev Raj Regmi, joint attorney at the Office of the Attorney General. “The tax authority, however, has not sought any advice from the attorney’s office after the provisional order. We are happy to give advice if approached.”
Kumar Ingnam, a professor at the Kathmandu University School of Law who did his doctorate in commercial international law, said that both domestic and international rulings apply in this case as Nepal is party to the convention establishing the tribunal and the Multilateral Investment Guarantee Agency, both under the World Bank Group, but Ncell too has agreed to local laws.
“Investment in Ncell has an international character so Nepal cannot deny the application of international laws as it is party to relevant conventions,” said Ingnam. “The best option for Nepal is to wait and present a strong case at the tribunal.”