Inland revenue department examines tax issues in sale of Ncell shares

Kathmandu January 27- TeliaSonera has been moving to finalize the sale of its 60.4 percent stake in Nepali telecom giant Ncell to Malaysian-based Axiata, but the government hasn’t decided whether or not to charge capital gains tax on the country’s biggest ever acquisition deal. 

There are differing views regarding the matter, and the authorities are studying several aspects of the mega sale.

The deal between TeliaSonera and Axiata is valued at Rs140 billion ($1.4 billion). As per the agreement signed between the two companies, TeliaSonera is selling its shares in Ncell to Axiata for around $1.030 billion. The Malaysian company will also be buying the shares of the Visor Group of Kazakhstan which owns 19.6 percent of Ncell. 

The Inland Revenue Department (IRD) said it had received an application from TeliaSonera asking whether it will have to fulfil any tax liabilities with regard to the transfer of shares between TeliaSonera and Axiata. 

“They have sought a prior decision from us. They have also expressed their opinion that, based on several agreements and legal premises of Nepal, capital gains tax will not be applicable on the share transfer,” IRD Director General Chuda Mani Sharma told the parliamentary Development Committee on Tuesday.

According to IRD, TeliaSonera has claimed in its application that it has to pay capital gains tax only in Norway, where it is registered, as per the agreement signed between Nepal and Norway to avoid dual taxation. The IRD has stated that there are two major principles for taxation in case of foreign investment—Residential Principle and Source Principle. According to the Residential Principle, a sovereign country can impose people/company to pay taxes based on its legal premises regardless of where they are based. Likewise, the Source Principle states that the host nation can seek taxes if any person/company has made income in that particular country. 
“Since these provisions are confusing, a number of countries have signed dual taxation avoidance agreements to avert such a situation to attract foreign direct investment (FDI),” Sharma said.

The IRD is of the view that since TeliaSonera is registered in Norway and will be selling its shares to Axiata which is based in Malaysia, it is unclear if Nepal can charge capital gains tax on the share transaction. As per the dual taxation avoidance system, TeliaSonera will have to pay tax to the Norwegian government since the company has gained from the transaction.

“TeliaSonera and Axiata will be conducting an offshore deal for transacting 80 percent of the shares of Ncell. Only 20 percent of the shares, which belong to a Nepali national as required by Nepal Telecommunications Policy 2004, are being transferred in Nepal.

Nepal Rastra Bank’s former deputy governor Maha Prasad Adhikari said that since TeliaSonera had made profits in Nepal, it should be taxable based on the spirit of Article 57 of the Income Tax Act. “The company has gained significant profits compared with the investment. Hence, the spirit of Article 57 should be taken into account,” Adhikari said.

Meanwhile, Kjella Lindstorm, head of public affairs of TeliaSonera, said that the company had decided to pull out from the Nepal market as per the decision of its board to focus more on the European market.  “Our decision has nothing to do with the investment climate in Nepal. In fact, the entry of Axiata means that Nepal has a brighter prospect for attracting foreign investment,” Lindstorm said. Source: TKP