Since the announcement in December last year that TeliaSonera was selling its stake in Ncell in the biggest and most complicated corporate deal, the entire divestment process has baffled the number crunchers, with questions lingering as to what happens with the capital gains tax (CGT)  of the Swedish-Finnish telecom operator. 

TeliaSonera on April 12 formally announced that the divestment was formally completed and that its stakes in Ncell had been officially acquired by Axiata, a Malaysian telecom giant. 

Ncell, now under Axiata, a couple of days back wrote to Large Taxpayer’s Office (LTO), stating it is unaware of its share transfer to Malaysian company, and hence is not liable to CGT, in a clear indication that it will not pay the applicable tax to the government. Ncell was responding to a letter by LTO sent to Ncell last week, in which the telecom operator was asked to submit the details of the share divestment and pay the applicable CGT. A source at the Ministry of Finance say Ncell replied to LTO a couple of days ago. 

“In a press release, Axiata had announced the acquisition [of Ncell], and the Ncell website now includes the trademark of Axiata,” said the source. “The LTO is planning to bring it under the tax net on the basis of such facts.”    

In a record deal, Axiata had bought Reynolds Holding, the owner of Ncell, from TeliaSonera at an enterprise value of USD 1.03 billion. 

Reynolds Holding is the TeliaSonera’s wholly-owned subsidiary, registered at Saint Kitts and Nevis, a tax haven. 

The Malaysian company had also acquired 19.6 percent stake of Visor Group of Kazakhstan to have 80 percent stake in Ncell. 

Though TeliaSonera formally announced on April 12 that the divestment had been formally completed, it had said nothing on CGT. 

The issue of CGT is being hotly debated since TeliaSonera announced in December last year that it would divest 60.4 percent of its stake in Ncell to Axiata.

On April 8, the Parliamentary Finance Committee had called a meeting to discuss the Ncell deal. However, the meeting was cancelled at the last hour. Sources said the meeting was cancelled following “political pressure from the highest level”. Interestingly, four days later, TeliaSonera announced that the divestment had been completed. The investment made in Nepal by TeliaSonera was through Norwary-based TeliaSonera Norway Nepal. 

In a complex ownership structure, TeliaSonera Norway Nepal had 100 percent stake in Reynolds Holding which owns 80 percent stake in Ncell. 

Even the government authorities were not sure whether the government should levy CGT on the acquisition of Ncell by Axiata, as it was off-shore transaction even though senior officials at the Ministry of Finance were in favour of levying CGT. 

According to tax officials, if CGT is imposed, 25 percent of the deal’s profit could go to the state coffers. Government sources said attempts are being made to avoid CGT in the 80 percent share transfer as the deal was between two non-Nepali companies that was signed abroad. 

However, Neeraj Gobinda Shrestha, the local partner, has already paid Rs2.83 billion in CGT for the sale of 20 percent of the shares to Sunivera Capital Venture. 

The issue of CGT was also discussed in the Parliamentary Development Committee. On January 26, the committee had sought response from the Inland Revenue Department, Department of Industry, Ministry of Information and Communication Technology, Office of the Company Registrar and the Nepal Telecom on various issues. 

At the meeting, lawmakers had expressed suspicion that the price for the 80 percent foreign stake was maintained higher assuming that no tax would be levied on that transaction, and the price for the domestically-held shares—on which the tax is applicable—was maintained lower “to evade tax”.