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The Ncell Tax Case: How a Deal Signed Abroad Ended Up Owing Nepal Billions

In 2016 control of a Nepali telecom company changed hands through a share sale in the Caribbean. Nepal said it was still owed tax. Here is what happened, who paid, and what every business can learn from it.

9 min read

Imagine you own a house in Kathmandu. Instead of selling the house, you put it inside a company registered on a small Caribbean island, and then you sell the shares of that company to a buyer in Malaysia. The house never moves. The buyer now controls it. But on paper, nothing was sold in Nepal.

Should Nepal get to tax the profit?

That question sits at the heart of one of the biggest tax fights in Nepal's history: the Ncell capital gains tax case. It involved a Swedish telecom giant, a Malaysian buyer, a holding company in Saint Kitts and Nevis, Nepal's Supreme Court and an international arbitration tribunal. It also holds lessons for anyone who invests in, works with, or advises businesses in Nepal.

The deal: selling Ncell without "selling" Ncell

Ncell is Nepal's largest private mobile operator. By 2015 it was controlled by TeliaSonera of Sweden through a chain of holding companies in the Netherlands and Norway. Near the bottom of that chain sat Reynolds Holdings, a company registered in Saint Kitts and Nevis, which owned 80 percent of Ncell.

In December 2015, TeliaSonera agreed to exit. Malaysia's Axiata Group, through its UK subsidiary, agreed to buy 100 percent of Reynolds Holdings for about US$1.365 billion (roughly Rs 145 billion at the exchange rate of the time). That price covered TeliaSonera's stake and a smaller stake held by another investor. Axiata took charge of Ncell in April 2016.

Notice what did not happen. Axiata did not buy the 80 percent stake in Ncell directly. It bought the Caribbean company that held it. The seller was not Nepali. The buyer was not Nepali. The contract was signed outside Nepal. Ncell kept operating exactly as before, with the same licence, towers and customers.

To the companies involved, this looked like a foreign transaction outside Nepal's tax reach. To many people in Nepal, it looked like a foreign company making a large profit from a Nepali asset and leaving without paying tax on it.

The legal problem: where does the profit come from?

Nepal's Income Tax Act 2002 taxes non-residents on income that has a source in Nepal. Shares of a Saint Kitts company are not obviously a Nepali asset. Axiata also says the seller was a Norwegian tax resident, that the Nepal-Norway tax treaty gives Norway the right to tax such share sales, and that advisers had told both sides the deal would not be taxed in Nepal. Tax experts at the time were split. Some argued the law had no clear rule for taxing offshore share sales, often called "indirect transfers". Others argued that since Reynolds Holdings' only real asset was Ncell, the value being sold was plainly in Nepal.

India had faced the same question in the famous Vodafone case. In 2012 the Indian Supreme Court ruled that an offshore deal could not be taxed under the law as it then stood. India responded by changing its law retrospectively, which led to years of disputes with foreign investors.

Nepal's tax authorities decided the Ncell deal was taxable. Ncell deposited large sums in 2016 and 2017, under protest, while the dispute moved through the courts.

The Supreme Court ruling

On 6 February 2019, a full bench of Nepal's Supreme Court, hearing a public interest case filed by a former government secretary and others, decided the deal was taxable. The court relied mainly on Section 57 of the Income Tax Act. In simple terms, that section says that if the ownership of an entity changes by 50 percent or more within three years, the entity is treated as if it had disposed of its assets, so the gain on those assets becomes taxable.

The court looked through the Caribbean holding company and focused on what really changed: control of Ncell, a Nepali company running a Nepali business on a Nepali licence. Control had moved from TeliaSonera to Axiata. That, the court said, was enough. It held Ncell and Axiata responsible for the tax.

This is a classic example of substance over form: judging a transaction by its economic reality rather than by the legal paperwork used to carry it out.

Arguing over the number

Winning the principle was only half the battle. In April 2019, Nepal's Large Taxpayers' Office assessed the total liability at about Rs 62.6 billion, including heavy fines, and ordered Ncell to pay a further Rs 39 billion on top of roughly Rs 23.6 billion already deposited.

Ncell went back to court. In August 2019 the Supreme Court cancelled the fines, saying they had been imposed without solid evidence. Its final order in November 2019 set the remaining tax at about Rs 21.1 billion, roughly Rs 18 billion less than the tax office had demanded. In April 2020, Ncell paid that amount plus interest, about Rs 23.4 billion, again under protest. In total Ncell paid roughly Rs 46 to 47 billion, which Axiata reports as about RM1.56 billion (Malaysian ringgit).

Taking Nepal to international arbitration

Axiata did not stop there. Because its buying company was based in the UK, it used the investment treaty between the UK and Nepal to bring a claim at ICSID, the World Bank's centre for investment disputes. Broadly, it argued that Nepal had treated a foreign investor unfairly by taxing a deal its law did not clearly cover.

On 9 June 2023, the tribunal dismissed the claims. Nepal's tax stood. The tribunal did order Nepal to pay about US$1.4 million (around Rs 185 million) because it had not complied with some earlier interim orders, but that was small change. Axiata wrote off about RM376.6 million (around Rs 10.8 billion) of related receivables, and its share price fell almost 4 percent when the news came out.

The exit: from US$1.365 billion (Rs 145 billion) to US$50 million (Rs 6.7 billion)

In late November 2023, less than six months after the arbitration loss, Axiata announced it was leaving Nepal. Days later it sold Reynolds Holdings to Spectrlite UK, a newly registered company owned by Satish Lal Acharya, a Nepali-origin businessman based in Singapore. The fixed price was US$50 million (about Rs 6.7 billion), plus further payments linked to Ncell's future performance.

A business bought for about US$1.365 billion (Rs 145 billion) was sold less than eight years later for a fixed price of about US$50 million (Rs 6.7 billion). Even measured in rupees, after years of the rupee weakening, that is a fall of more than 95 percent. Axiata said only that the outlook in Nepal had become "increasingly challenging". Falling profits, years of tax and regulatory disputes, and a licence due to expire in 2029 all weighed on the price.

The exit was controversial too. The Nepal Telecommunications Authority (NTA) said its prior approval was required for the share transfer and that it had not been notified. Some critics asked whether the low price was meant to avoid tax. A writ petition challenged the deal at the Supreme Court, which dismissed it (the full verdict was reported in July 2026) but left the final decision on recognising the transfer to the NTA. That decision, and what happens when Ncell's licence ends in 2029, are still open.

What this case teaches

1. Tax follows the value, not the paperwork. Holding companies in low-tax countries are common and often legitimate. But Nepal's Supreme Court showed it will look through them when the real asset is in Nepal. Anyone structuring an investment here should assume that a change in control of a Nepali company can trigger Nepali tax, wherever the shares are sold.

2. Unclear laws are expensive for everyone. The dispute ran for about seven years, through courts at home and a tribunal abroad. Nepal collected its tax, but the uncertainty became part of why the investor left. Clear written rules on indirect transfers would protect government revenue and give investors confidence at the same time.

3. Tax risk belongs in the price. A buyer should identify a possible tax bill before signing, through due diligence, an advance ruling from the tax authority where possible, and indemnities or price adjustments in the contract. Axiata ended up carrying a liability that arguably arose from the seller's gain.

4. Regulation can destroy value faster than competition. Ncell's value did not collapse because customers left. It fell largely because of tax disputes, regulatory friction and a licence with a fixed end date. In licensed sectors such as telecom, banking, energy and aviation, regulatory risk can matter as much as market risk.

5. Investment treaties are not a tax shield. Treaties protect against unfair treatment, but they do not exempt investors from a host country's tax law. The ICSID outcome shows tribunals will respect a country's right to tax where its courts have applied its own law.

The bottom line

The Ncell case turned a technical question, whether Nepal can tax an offshore share sale, into a national debate about fairness, sovereignty and the investment climate. Nepal won the tax argument. Whether it won the bigger argument, about attracting long-term foreign investment, is something the next few years will answer.

Sources

This post is for general information only and is not tax or legal advice. Figures come from public reports and company disclosures and are rounded. Rupee amounts for foreign-currency figures use Nepal Rastra Bank exchange rates around the time of each event.