Formal process begins but lawyers say parties may also choose amicable settlement
KATHMANDU, May 23: The International Centre for Settlement of Investment Disputes (ICSID) on Monday registered a case filed by Axiata UK and Ncell against the government of Nepal over capital gains tax levied by the tax authorities in Nepal, according to the ICSID website. The entity is part of the World Bank Group.
Tax worth Rs 39 billion claimed by the government of Nepal has now entered into a formal process of international arbitration. With this the process of formation of a tribunal begins under the Bilateral Investment Treaty (BIT) signed between Nepal and the UK in 1993.
Axiata UK filed a request for arbitration before the ICSID three weeks ago. It is dissatisfied with the tax evaluation on the purchase of an 80 percent 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,” said Sementa Dahal, a lawyer at the law firm Abhinawa Law Chambers. The number of arbitrators may vary from one to three. 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. ICSID shall have three members for settling the matter.
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 this also, ICSID itself will form a tribunal within the next 30 or 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,” added lawyer Dahal.
It may take two to three years for a final verdict through arbitration but lawyers say 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, which issued an interim order to the tax authorities to put the tax assessment issue on hold. Ncell claimed that the remaining payable CGT is only Rs 14 billion and interests and fines are not applicable as the tax was assessed recently.
The Large Taxpayers’ Office had assessed the tax and required Ncell to pay a total of Rs 62 billion, including additional payables of Rs 39 billion, following the court verdict in April.
It’s not yet clear how the government of Nepal, which has already been informed of the case filing by Axiata UK at ICSID, shall respond in the matter. Three government officials concerned including LTO chief Dhaniram Sharma did not respond to phone calls and text messages.
There are also questions whether the BIT between Nepal and the UK is applicable to companies in Saint Kitts and Nevis and Malaysia as Nepal has not signed any BIT with those countries. Some lawyers say that the government of Nepal may argue that the BIT is not applicable as Saint Kitts and Navis-based Reynolds Holdings Limited and Malaysia-based Axiata are not member countries to the agreements.