Ncell and its parent company, Axiata, have knocked the door of International Centre for Settlement of Investment Dispute, a body under the World Bank, claiming that Nepal’s conduct in relation to capital gains tax imposed on the mobile company is against the Bilateral Investment Treaty between Nepal and the United Kingdom.

This is a parallel move made by these companies after they lodged a petition at Nepal’s Supreme Court on April 22 arguing that the Large Taxpayers Office wrongly determined their tax liability at Rs39.06 billion in the name of these companies.  The court has ordered Nepali authorities not to ask Ncell and Axiata to pay the tax for the time being.

On April 26, Malaysia-based Axiata, the parent company of Ncell, made announcement in the name of its shareholders that Axiata Investments (UK) Limited  and Ncell Private Limited have filed a Request for Arbitration  with the International Centre for the Settlement of Investment Disputes (ICSID) pursuant to the Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Nepal for the Promotion and Protection of Investments.

The Malaysian company wholly owns the Axiata UK while it has 80 percent stake in Ncell indirectly.

As per the announcement of the Axiata, the two subsidiaries made the request, claiming that Nepal's conduct with regards to the capital gains tax imposed on Axita and Ncell contravenes the international law obligations under the Bilateral Investment Treaty between the two countries.

“The claims relate to Nepal's conduct in imposing capital gains tax in connection with Axiata UK's acquisition of 100 percent of the shares of Reynolds Holding Limited, which owns 80 percent of the shares of Ncell,” the announcement reads. The company said Nepal government has also been notified about the request.

This is the first ever case Nepal faces in the ICSID which was founded in 1966 based on a multilateral treaty formulated by the executive directors of the World Bank to further its objective of promoting international investment. Nep

Nepal ICSID Convention entered into force for Nepal on February 6, 1969.

The Bilateral Investment Treaty between Nepal and the United Kingdom and Northern Ireland has made the provision of referring the dispute on investment to the ICSID.

Article 8 of the treaty states “Each Contracting Party hereby consents to submit to the International Centre for the Settlement of Investment Disputes  for settlement by conciliation or arbitration under the Convention on the Settlement of Investment Disputes between States and Nationals of other States and any legal dispute arising between that Contracting Party and a national or company of the other Contracting Party concerning an investment of the latter in the territory of the former.”

“If any dispute should arise and agreement cannot be reached within three months between the parties to this dispute through pursuit of local remedies,  if the national or company affected also consents in writing to submit the dispute to the Centre for settlement by conciliation or arbitration under the Convention, either party may institute proceedings by addressing a request to that effect to the Secretary-General of the Centre as provided in Articles 28 and 36 of the Convention,” according to the treaty. The two subsidiaries have claimed that since investment in Nepal came through Axiata UK,  the treaty is attracted in this case.

But, Semanta Dahal, a corporate lawyer who holds expertise in foreign investment laws, however, said Nepal should object to Axiata and Ncell’s request as the issue does not fall under the jurisdiction of ICSID.

“As Axita is basically a Malaysian company and investment came directly from Raynold Holdings registered in Saint Kitts and Nevis, a tax haven in the Caribbean with which Nepal has not signed bilateral investment treaties, Nepal can raise a question about the jurisdiction of ICSID regarding this case,” Dahal told the Post.

In a tweet, Dahal said: “GON [government of Nepal] can raise preliminary objection under Art. 41 of ICSID immediately.”

Article 41 of the convention states any objection by a party to the dispute that dispute is not within the jurisdiction of the Centre, or for other reasons is not within the competence of the Tribunal, shall be considered by the Tribunal which shall determine whether to deal with it as a preliminary question or to join it to the merits of the dispute.