Monday, May 20, 2019

Axiata moves to international arbitration against Nepal government

The tax dispute between Ncell and the government has entered into a formal process of international arbitration as Axiata and Ncell has formally registered a case against the government of Nepal –  over capital gains tax (CGT) levied by the tax authorities in Nepal – at the International Centre for Settlement of Investment Disputes (ICSID).
According to a notice published on the ICSID website today, Axiata UK filed a request for arbitration before the ICSID – a body under the World Bank Group – three weeks ago as it was dissatisfied with the Nepal government’s decision to charge CGT worth Rs 39 billion. Axiata UK and Ncell filed the case at the ICSID on the basis of a bilateral investment treaty (BIT) signed between Nepal and the UK in 1993. The treaty talks about taking the investment-related dispute to the ICSID, based on a multilateral treaty. With the ICSID registering the case, the process of formation of a tribunal begins under the Bilateral Investment Treaty, though it is not yet clear that the BIT between Nepal and the UK is applicable to companies in Saint Kitts and Nevis and Malaysia or not as Nepal has not signed any BIT with those countries.
The Axiata – the new owner of Ncell – was dissatisfied with the tax evaluation on the purchase of an 80 per cent stake in Ncell, via Reynolds Holdings Limited which is based in Saint Kitts and Nevis in the Caribbean.
“Axiata has to send a proposal on the number of arbitrators within the next 10 days,” according to corporate lawyer Sementa Dahal. “The number of arbitrators may vary from one to three,” he said, adding that the government gets 20 days to respond to Axiata’s proposals. “Once there is agreement by both parties the arbitration proceedings will be initiated.”
Failure to agree means the case will go into default and ICSID shall mediate the process for appointment within the next 30 or 60 days from the date of registration of the arbitration case. The ICSID shall have three members for settling the matter. Likewise, Axiata UK and the government of Nepal shall appoint one arbitrator each and another will be chosen as agreed by both parties.
In case the parties fail to do so, the international arbitration body itself will form a tribunal within the next 30 to 90 days from the date of registration and go ahead with the arbitration proceedings. “Before the formal arbitration proceedings begin, both parties may also choose to conduct pre-hearings for an amicable settlement,” Dahal said, adding that it may take two to three years for a final verdict through arbitration though it’s hard to predict the timing of the final verdict.
A case filed by Ncell – the subsidiary of Axiata – is sub judice at the Supreme Court as they have lodged a petition at Supreme Court on April 22, which issued an interim order to the tax authorities to put the tax assessment issue on hold. Ncell has claimed that the CGT liability is only Rs 14 billion, not Rs 39 billion as fixed by the Large Tax Office (LTO), as interests and fines are not applicable as the tax was assessed recently. After the Supreme Court verdict in April, the LTO had assessed the tax and asked Ncell to pay a total of Rs 62 billion, including additional payables of Rs 39 billion.
Though, it’s not the first time that Nepal has been challenged in the international court, it is not yet clear how the government – that has been informed of the case filing by Axiata UK at ICSID – will respond to the matter. 
Given the complicated process, the legal battle between the tax authorities and Ncell and Axiata is set to prolong. With the new turn in the dispute, the government’s chance of getting windfall tax from Ncell and meeting the revenue target for the current fiscal year also seems far-fetched.

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