IRD examines tax issues in sale of Ncell shares
IRD is of the view since TeliaSonera is registered in Norway and will be selling its shares to Malaysia-based Axiata, it is unclear if Nepal can charge capital gains tax on the share transaction
Jan 27, 2016-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 means TeliaSonera will be pulling out of Nepal. It had entered the country in 2008 after buying a majority stake in the then Spice Nepal from the Visor Group.
Meanwhile, 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.
“We are studying the matter. We are consulting experts and we are also looking at the verdict of the Supreme Court of India regarding a similar case of telecommunication service provider Vodafone,” Sharma said.
According to a report of global auditing firm KPMG, the Indian Supreme Court had ruled that Indian tax authorities could not tax offshore transactions in the Vodafone case, putting an end to the controversy regarding taxation in India of the offshore transfer of shares of Cayman Islands Company by the Hutchison Group to the Vodafone Group.
The Indian Supreme Court had reversed the decision of the Bombay High Court and ruled that the Indian tax authorities did not have territorial jurisdiction to tax the offshore transaction, and therefore, Vodafone was not liable to pay Indian taxes.
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.
Sunivera Capital Ventures has already moved to sign a Share Purchase Agreement (SPA) to acquire local investor Niraj Govinda Shrestha’s 20 percent stake in Ncell. The process of transferring 200,000 shares belonging to Niraj Govinda Shrestha to Sunivera Capital Ventures owned by Bhavana Singh Shrestha has begun.
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.
Published: 27-01-2016 08:40