Sound Legal Leverage

Nepal government has thanked all lawyers and experts who advocated on its behalf against a lawsuit filed at the International Centre for Settlement of Investment Disputes (ICSID) regarding the capital gains tax. Nepal won the litigation, enabling it to save around Rs. 60 to 65 billion. Axiata Group Berhad, the parent company of Ncell, had filed a petition against the Inland  Revenue Department of Nepal at the ICSID,  an international  investment  dispute  settlement  body,  established by  the World Bank, arguing that Nepal government imposed a huge amount of capital gain tax during the acquisition of an 80 per cent stake in Ncell, a Nepal-based telecommunication company. The Axiata Group had claimed damages worth Rs. 55.54 billion and also sought around 16 per cent interest of tax amount it paid to Nepal government and arbitration expenses. 

In the petition, the Axiata Group accused Nepal government of meting out injustice to it by imposing the capital gains tax on it. The telecommunication conglomerate even went on to argue that Nepal government had violated the bilateral investment promotion and protection agreement signed between Nepal and the UK on March 2, 1993. If the verdict had come to its favour, this allegation would have been validated, which could hurt Nepal’s image as appropriate place for the foreign companies to run their businesses. With the ICSID verdict, such unfounded charges have been dismissed and it has been justified that Nepal’s taxation system is not faulty. Neither does it discourage the prospective investors to invest in Nepal. 

Minister for Law, Justice and Parliamentary Affairs Dhan Raj Gurung Tuesday said that the Cabinet meeting decided to thank all the lawyers and officials of the Ministry who worked round the clock to make sure that Nepal is acting on fair legal ground. Nepal government recruited five law firms — Prudential Law Associates and Abhinawa Law Chamber of Nepal, the UK-based lawyer Surya Prasad Subedi’s Three Stone, and the US-based Foley Hoag and Kshetry and Associates of Nepali origin lawyer Khagendra Kshetry – to advocate the case from Nepali side. In the beginning Nepal was reluctant to fight the legal case when it was lodged at the ICSID in May 2019. But the international tribunal itself recruited an arbiter to defend the case from Nepali side. This has encouraged Nepal to pursue legal course against the Axiata. 

Ncell had collected Rs. 1 trillion 43 billion in profits when the Swedish company TeliaSonera sold it to the Malaysian company Axiata in 2072 B.S.  NRD director general Dirgha Raj Mainali said that if interest was added to the current rate of 15 per cent, the private telecommunication company will have to pay an additional Rs. 45 billion. Although Nepal government should no longer pay Rs. 66 billion as claimed by the Ncell following the ICSID's ruling, it is liable to pay some amount of compensation to the latter. Likewise, the international dispute settlement body has cautioned that Nepal should not levy further tax, fees and penalties on the petitioner. This might hinder Nepal's efforts to recover an additional tax of around Rs. 57 billion from Ncell. Nonetheless, the crucial verdict has not only saved a big amount of money but also demonstrated the country's has sound legal standing in its corporate dealings and has the capability to deal with financial dispute at the international tribunal.