Arbitration request filed against Nepal over Ncell tax row: World bodyThe registration paves the way for the formation of tribunal
The International Centre for the Settlement of Investment Dispute, a body under the World Bank Group, has confirmed that it has registered an application by Axiata Investment (UK) and Ncell Private Limited against the government of Nepal.
Last month, these two companies had filed a request for arbitration with the International Centre for the Settlement of Investment Dispute (ICSID), challenging the imposition of capital gains tax on Axiata and Ncell on the basis of a bilateral investment treaty between Nepal and the United Kingdom of Great Britain and Northern Ireland. The treaty talks about taking the investment-related dispute to the ICSID, based on a multilateral treaty.
This was the parallel move made by the mobile companies after they lodged a petition at Nepal’s Supreme Court on April 22, arguing that the Large Taxpayers Office wrongly determined their tax liability at Rs39.06 billion in the name of these companies.
In a notice published on its website on May 20, the international arbitration body stated that its secretary general had registered the request for the institution of arbitration proceeding.
As per Article 4 of the Institution of Proceeding of the ICSID, as soon as the secretary-general shall have satisfied himself that the request conforms in form and substance as mentioned, he shall register the request in the Arbitration Register and on the same day dispatch a notice of registration to the parties. He shall also transmit a copy of the request and of the accompanying documentation (if any) to the other party to the dispute. Legal experts say that after the notification about the registration of arbitration request, the process of forming the tribunal would begin.
According to Semanta Dahal, a corporate lawyer, there is ample ground to doubt whether Axiata UK’s indirect acquisition of Ncell’s shares qualifies as an investment in Nepal.
He argued that the bilateral investment treaty cannot be applicable to taxation as long as the host country imposes taxes deliberately to deprive investors of their justifiable return on investment.
In previous cases, a bilateral investment treaty was applicable when the host country applied retrospective legislation in arbitrary and discriminatory ways, he said.
“The best option for the government is to register its objection questioning the jurisdiction of ICSID right now although such objection can be registered even after the appointment of arbitrators,” Dahal said.
Meanwhile, given the complicated process, the legal battle between the tax authorities and Ncell and Axiata is set to prolong.