The Supreme Court has ordered Ncell and Axiata, the parent company of the private-sector telecom operator, to clear its outstanding capital gains tax within three months and barred Ncell from repatriating profit and distributing dividend and shares until it pays the dues.
The top court in February had said Ncell and Axiata should paid and capital gains tax, ending a long-drawn debate over whether the buyer should pay the tax, but the full text of decision released on Tuesday has set the deadline of three months for the companies to clear the dues. TeliaSonera, a Swedish company which previously owned Ncell, exited the country without paying the capital gains tax after it sold the company to Axiata, the Malaysian telecom giant, in 2016.
A full bench of Chief Justice Cholendra Shumsher Rana and justices Mira Khadka, Bishwombhar Prasad Shrestha, Ananda Mohan Bhattarai and Tanka Bahadur Moktan observed that the onus to pay capital gains tax lies with Ncell—and not TeliaSonera.
“Since the capital gains tax is applicable to Ncell, not of TeliaSonera Sweden, determine the tax due to the government considering the basis and reasons included in the court order. As Ncell has already paid a total of Rs 21.54 billion on May 7, 2016, and June 4, 2017, as capital gains tax and Rs 2.32 billion as late fee to the Large Taxpayers’ Office, make all necessary decisions as per the legal provisions within three months,” the order of the full text reads.
The February decision ordering the mobile company to pay capital gains tax had come in response to a public interest litigation filed on January 28, 2017, by six petitioners, including former government secretary Dwarika Nath Dhungel, demanding that the government retrieve tax from Ncell.
Bowing to pressure and criticism from various quarters, Ncell on June 4, 2017, had deposited an additional Rs 13.6 billion as part of the tax applicable on the profit generated through the sale of the telecom company.
The amount deposited by Ncell is part of the 15 percent withholding tax, or tax deductible at the source for capital gains.
In May 2016, the company had paid Rs 9.97 billion as 15 percent withholding tax. It had filed the tax return based on its own calculations.
On October 10, 2017, the Supreme Court had directed the Large Taxpayers’ Office, Inland Revenue Department and Finance Ministry to furnish details on their decision to determine capital gains tax on the sale of Ncell shares by Niraj Govinda Shrestha to Sunivera Capital Ventures owned by Bhawana Singh Shrestha.
With the full text of the decision out, the controversy surrounding Ncell and its tax issues has been put to rest, and now it’s up to the government authorities to implement the order.
In a record deal struck in April 2016, Malaysia’s Axiata bought Reynolds Holding, which held a majority stake in Ncell, from TeliaSonera at an enterprise value of $1.03 billion. The Malaysian company had also acquired a 19.6 percent stake in Visor Group of Kazakhstan, increasing its stake in Ncell to 80 percent. But the tax authority initiated the process to tax the transaction only after TeliaSonera exited Nepal.
After failing to recover the tax from TeliaSonera, the Large Taxpayers’ Office had mounted pressure on Ncell and Axiata to pay the tax.
Based on the LTO’s, Nepal Rastra Bank on July 10, 2017 had issued directives to banks and financial institutions not to provide foreign exchange facilities to the companies associated with Ncell-Axiata and Reynolds Holdings Limited, among others. Reynolds Holding was TeliaSonera’s wholly-owned subsidiary registered at Saint Kitts and Nevis, a tax haven in the Caribbean.
But on December 24, 2017, Justices Om Prakash Mishra and Kedar Prasad Chalise passed an order, allowing repatriation of profits earned by the telecom service provider in the country. Stating that obstruction of dividend repatriation would adversely affect the company and its shareholders, the court directed the government not to obstruct the process. The central bank has since given the nod to Ncell to repatriate around Rs23 billion.
Commenting on Tuesday’s full text of the court order, Senior Advocate Surendra Bhandari said the decision to ban distribution of dividend also means a ban on repatriating the profit of the company as well as profit shared on the basis of the dividend.
“This is a landmark and a bold decision,” Bhandari told . “The decision has told the Large Taxpayers’ Office to re-characterise tax to be retrieved including the penalty. It has also set a precedent that one cannot evade tax in Nepal creating a mediator company abroad. The court has also ordered the authorities to counter treaty shopping,” he added.
On February 11, five days after the top court ordered Ncell and Axiata to pay capital gains tax, the Large Taxpayers’ Office said the companies were liable to pay Rs75 billion, including interest for delaying the payment, in taxes.