Ncell’s ownership explained in the Flow Chart:-
‘Mero Mobile’ launched its service brand commercially in 2061 B. S, and later in 2066 B.S, it was rebranded as ‘Ncell’ by its parent company TeliaSonera. Telecommunication business has significantly hopped and become easily available to the general public at affordable prices when the private sector started to challenge government monopoly. Currently, Nepal Telecommunication (NTC) and Ncell are the two dominant players in the telecom space in Nepal. Over the past few years, Ncell, with its aggressive marketing and better services, has been successful to create its own customer base, brand image, and still continues to do so.
Later, in 2072 B.S, Axiata Group Berhad acquired Reynolds Holdings, which held 80% of Ncell’s shares. After the acquisition, questions were raised whether the organization is liable to pay Capital Gain Tax, if it is an underlying transfer of Ncell through Axiata and if yes, whose liability is it to pay?
Amount in Question
Ncell’s tax liability
Later, after appeal, the court excused the tax amount under Section 120(a) which made the total tax liability to 21,10,39,71,535 +interest till the date of the tax payment.
Difference between Income Tax and Capital Gain Tax
Ncell’s tax case is a matter of Capital Gain Tax, which is very different from Income Tax. Income tax is a type of tax that governments impose on income generated by businesses and individuals within their jurisdiction.  Whereas, capital gain tax is a tax on the growth in value of investments incurred when individuals and corporations sell those investments  or capital assets like land or buildings and more.
Facts in the Timeline
2072-12-29 – Reynolds Holding was acquired by Axiata.
2074-03-13 – Tax Office issued an order to TeliaSonera for the payment of capital gains tax.
2075-10-23 – Supreme Court decided that Ncell was liable to pay the respective capital gain tax.
2076-01-03 – Tax office issued an order to Ncell for executing Supreme Court’s decision.
2076-05-13 – Supreme Court decided that Ncell was liable to pay other fees and interests.
Court decided on the following matters:-
The Supreme Court basically had questions to answer before it decided if Ncell was liable to pay capital gain taxes to the Government of Nepal or not.
- Whether or not it is a subject matter of Public Interest and if it is under the jurisdiction of the Supreme Court where, the Supreme Court decided that there were substantial concerns and meaningful relations. Thus, it is a matter of Public Concern and also comes under the jurisdiction of the Supreme Court.
- What is the nature of the transaction raised in the case?
- Whether the organization is liable to pay Capital Gain Tax, and if yes, whose liability is it to pay?
The court further had some explanations to do before it decided on the questions above, to which it concluded that,
Direct transfer of a company is, when a foreign company acquires shares of any company in Nepal and Indirect transfer is, when a foreign company acquires any holding company of a Nepali Company in a foreign land. Since Ncell’s holding company, Reynolds Holdings, Nevis was acquired by Axiata, the court had to decide if transfer of ownership of the Reynold Holding taking place in a foreign land should be considered as transfer of ‘underlying ownership’ of Ncell through Reynolds.
The court also decided that not only had there been some major changes in the ownership but also in the top level executive of the company, directors, nominee, representatives, management team and so on. Ncell, after the acquisition, was fully owned, operated and controlled by Axiata. After the acquisition, not only its share investment and ownership changed, Ncell’s control, vital economic interest and effective management also did.
Court concluded that it was not only Reynolds’ transfer but was Ncell’s underlying transfer using its holding company. Plus, the court found Reynolds holding’s shares and the company itself was valueless when trying to look at its assets separating it from Ncell’s shares and assets.
Thus, the court held Ncell liable for the payment of capital gain taxes.
Ncell filed a writ appeal at the Supreme Court when it concluded that Ncell was liable for the payment of NRs. 39,06,06,84,815 as Capital Gains Tax. Ncell also claimed that it was against the principle of Natural Justice that it wasn’t given a chance for self-assessment or defense. To which, the tax office defended and said, every order issued in the name TeliaSonera, would also be an order to Ncell and it had followed due process when deciding on the tax amount to be paid.
The Supreme Court also concluded that due process had been followed when deciding and hearing the case, this case is within the jurisdiction of the Supreme Court. But Ncell is only liable to pay all the Capital Gains Tax excluding certain charges which lessen the final amount to 21,10,39,71,535 +interest till the date of the tax payment.