Meaning of Capital Gains Tax
A capital gains tax (CGT) is a tax on the profit realized on the sale of a non-inventory asset. The most common capital gains are realized from the sale of stocks, bonds, precious metals, real estate, and property.
Not all countries impose a capital gains tax and most have different rates of taxation for individuals and corporations. Countries that do not impose a capital gains tax include Bahrain, Barbados, Belize, Cayman Islands, Isle of Man, Jamaica, New Zealand, Sri Lanka, Singapore, and others. In some countries, such as New Zealand and Singapore, professional traders and those who trade frequently are taxed on such profits as a business income.
Capital Gains Tax as an Obstacle to Sale
The CGT can be considered a cost of selling which can be greater than for example transaction costs or provisions. CGT sometimes could be a barrier for trading as it may negatively affect the investors’ willingness to trade, which in turn can change assets prices. Hence, a business person may be interested in receiving returns in form of dividend or realize the profits in form of sare disposal in the market. The taxes prelavent may motivate the investor to arbitrage between such options.
Taxation System in Nepal
Residency and Source based Taxation System
Concept of Residency and Source Based Taxation
Income Tax Act 2058 Nepal, follows source and residency based principle for taxation. Income of a resident person is taxed in Nepal irrespective of the location of the source of income. And, income of a non resident is taxed only to the extent such income is sourced in Nepal.
Important Definitions from Income Tax Act
Assessable Income: Section 6 of Income Tax Act 2058: Subject to this Act, the following income of a person for an income-year from any employment, business, investment or windfall gain shall be treated as the assessable income:
a) Income of a resident person from the employment, business, investment or windfall gain of the year irrespective of the location of the source of the income; and
b) Income of a non-resident person from the employment, business, investment or windfall gain of the year but only to the extent the income has a source in Nepal,
Provided that, the assessable income does not include any income exempt under Section 11 or Section 64 or both.
Income: Section 2(Ja) of Income Tax Act 2058: Income means a person’s income from any employment, business, or investment and the term also means the total of those income as calculated in accordance with this Act.
Taxable Income: Section 5 of Income Tax Act 2058: The taxable income of a person for an income-year is equal to the amount as calculated by subtracting reduction, if any, claimed for the year under Section 12, Section 12Ka, Section 12Kha or Section 63 or Schedule 1 or all, from the total of the person’s assessable income for the income year from each of the following income heads: (a) business; (b) employment; and (c) investment and (d) windfall gain.
Adjusted Taxable Income: Section 2(Ka.Na.1) of Income Tax Act 2058: Adjusted taxable income means an amount of taxable income of a person for an income year as calculated by ignoring reductions referred to in Section 12 and deductions referred to in Section 14(2), Section 17, and Section 18.
The Marination of Brains
In case of person resident in Nepal
1. If you are a person resident in Nepal then all your income from employment, business, investment or windfall gain of the year irrespective of the location of the source of the income will be treated as your assessable income.
2. The income to be inscluded in assessable income will be calcuated as per the provisions of Section 7, 8, 9 and Section 2(Ja1). Income can include both Nepal as well as foreign sourced income.
3. The tax rate as specified in the Act are applied in the taxable income assessed as above.
In case of person not resident in Nepal
1. If you are a non-resident person employment, business, investment or windfall gain will be treated as your assessable income but only to the extent the income has a source in Nepal.
2. The rate as specified in the Act (including withholding rates) will be applied in the Nepal sourced income assessed as above.
Exceptions to Residency and Source based Taxation System
It is generally understood that Nepal follows source or residency based principle. However, there are some expeptions to this general rule. Some income of non resident persons that are not sourced in Nepal may be subject to tax. The instances where this might occur in case of prevailing Income Tax Act in Nepal are discussed below.
The application of advance tax withholding mechanism under Section 95A doesn’t regard to the source based principle for deduction of taxes. When Section 95A is attracted, the fact that the income is not sourced in Nepal, doesn’t provide any relief to the person who is liable to deduct the advance taxes on the gains determined.
Followings are the provisions provided by Section 95A for the withholding of taxes:
Nature of Payment | Rate | Description | Is final withholding? |
gains on commodity future market under section 95Ka(1) | 10% | section 95Ka(1): 10% withholding is made on gains of person on commodity future market transaction by entity conducting commodity future market business | No |
Recipient of digital service income u/s 95Ka(6Kha) | 1% | section 95Ka(6Kha): on income received by person providing software or similar electronic service outside Nepal and receives payment for the same in foreign currency, advance tax shall be withheld by the concerned Bank, Financial Institution and Money Transfer that receives such payment | No |
gains on disposal of interest in resident entities (calculated under Section 37) under section 95Ka(2) to person other than resident entity engaged transaction of securities | as prescribed | section 95Ka(2)(Ka): 5%, 7.5%, 10% & 25% withholding is made on gains of resident individual with holding period more than 365 days, resident individual with holding period less than 365 days, resident entity & others on disposal of listed securities by entity conducting securities exchange market business section 95Ka(2)(Kha): 10%, 15% & 25% withholding is made on gains of resident individual, resident entity & others on disposal of unlisted securities by entity whose interest is disposed off Consideration in calculation of gain on disposal of listed securities under Section 37: Section 95Ka(2Ka): In calculating the gain under Section 95Ka(2)(Ka) it shall be made as per the average cost of the investment of the person in the particular entity on the date of disposal | not a final withholding but no extra liability for resident individual schedule 1(1)(4)(Kha)(3): 5% tax is applicable on gains of individual on disposal of listed securities held for more than 365 days else 7.5% is applicable |
gains on disposal of land & building under section 95Ka(5) and section 95Ka(6) by land revenue office (at the time of registration) | as prescribed | section 95Ka(5)(Ka): 2.5% withholding is made on capital gains of individual on disposal of NBCA (land & building) owned ≥ 5 years section 95Ka(5)(Kha): 5% withholding is made on capital gains of individual on disposal of NBCA (land & building) owned < 5 years section 95Ka(6): 1.5% withholding is made on gains of disposal of land & building, other than specified in section 95Ka(5) | not final withholding but no extra liability for resident individual schedule 1(1)(4)(Kha)(1): 2.5% tax is applicable on capital gains of individual on disposal of NBCA (land & building) owned ≥ 5 years schedule 1(1)(4)(Kha)(2): 5% tax is applicable on capital gains of individual on disposal of NBCA (land & building) owned < 5 years |
import for business purpose under section 95Ka(7) | 5% | section 95Ka(7): 5% withholding is made on custom value at the custom point by custom office on import of: | No |
2.5% | section 95Ka(7): 2.5% withholding is made on custom value at the custom point by custom office on import of: | No |
If we observe the above provisions for withholding taxes, we can easily conclude that Section 95A disregards the source and residency based principle. Let’s say for example:
(1) A person supplies Wheat into Nepal. Simply by supplying goods into Nepal, it cannot be deemed to be Nepal sourced but 2.5% tax has to be withheld at the point of customs by Customs Office, disregarding the source principle of taxation to non-residents.
(2) A non-resident has interest in equity shares of an entity in Nepal. He disposes off that share. But since the disposal of that share doesn’t fall under the definition of disposal of domestic asset, it doesn’t constitute Nepal sourced income. However, it still is taxable under the provision of Section 95A and the tax applicable is withheld by the entity whose interest is being disposed of in case of unlisted shares and by the entity involved in securities market business in case of listed shares.
Domestic Laws realting to Capital Gains
Income Tax Act 2019 (2019.04.09 to 2031.07.04)
Link to Income Tax Act 2019
Features or lack thereof of Income Tax Act 2019:
1. No distinction of resident person and non-resident person for taxation purpose
2. No concept of income derived, accrued from or sourced in in Nepal, so there is not very clear taxation provision of non-resident person
3. Not based on self-assessment system
4. Tax Rates were defined by Annual Finance Acts rather than in Act
5. Concept of TDS existed in Emlpoyment Income
Income Tax Act 2031 (2031.07.05 to 2058.12.18)
Link to Income Tax Act 2031
Features or lack thereof of Income Tax Act 2031
1. Distinction between resident person and non-resident person for taxation purpose
2. No concept of income derived, accrued from or sourced in in Nepal, so there is not very clear taxation provision of non-resident person
3. There is a provision regarding income acquired from Nepal which puts all income derived by Non Residents (including their gains on disposal of interest in Nepal) so the intention is not very clear on taxation of non-residents
3. Based on self-assessment system on taxpayer’s option
4. Tax Rates were defined by Annual Finance Acts rather than in Act
5. Concept of TDS existed in employment, professional and business income
Income Tax Act 2058 (2058.12.19 to 2064.03.32)
Until Section 89A was introduced by Finance Act 2064 (2007) which was effective since 2064.04.01, there weren’t any provisions in Income Tax Act 2058 which charged taxes to non-residents in income that were not sourced in Nepal. So the gains on disposal of interest by non-residents were not taxable in Nepal for this period.
Income Tax Act 2058 (2064.04.01 to 2066.03.31)
Section 89A was introduced by Finance Act 2064 (2007) and this was effective since 2064.04.01 and this section defined tax withholding in the benefit received from disposal of interest in the resident entities.
(Unlisted Securities: 10% on gains on disposal by Resident Natural Person and 15% in other Case)
(Listed Securities: 10% on gains on disposal by Resident Natural Person and 15% in other Case)
Income Tax Act 2058 (2066.04.01 to 2067.03.32)
Section 89A was amended by Finance Act 2066 (2009) and this was effective since 2066.04.01.
(Unlisted Securities: 15% on gains on disposal)
(Listed Securities: 15% on gains on disposal)
Income Tax Act 2058 (2067.04.01 to 2068.03.32)
Section 89A was removed and Section 95A was introduced by Financial Act, 2067 (2011) and this was effective since 2067.04.01.
(Unlisted Securities: 10% on gains on disposal by Resident Natural Person and 15% in other Case)
(Listed Securities: 10% on gains on disposal by Resident Natural Person and 15% in other Case)
Income Tax Act 2058 (2068.04.01 to 2075.03.32)
Section 95A was amended by Financial Act, 2068 (2012) and this was effective since 2068.04.01
(Unlisted Securities: 10% on gains on disposal by Resident Natural Person and 15% in other Case)
(Listed Securities: 5% on gains on disposal by Resident Natural Person and 10% in other Case)
Income Tax Act 2058 (2075.04.01 to 2076.03.31)
Section 95A was amended by Financial Act, 2075 (2019) and this was effective since 2075.04.01
(Unlisted Securities: 10% on gains on disposal by Resident Natural Person, 15% for Resident Entity and 25% on in other Case)
(Listed Securities: 7.5% on gains on disposal by Resident Natural Person, 10% for Resident Entity and 25% on in other Case)
Income Tax Act 2058 (2076.04.01 to 2078.03.31)
Section 95A was amended by Financial Act, 2075 (2019) and this was effective since 2075.04.01
(Unlisted Securities: 10% on gains on disposal by Resident Natural Person, 15% for Resident Entity and 25% on in other Case)
(Listed Securities: 5% on gains on disposal by Resident Natural Person, 10% for Resident Entity and 25% on in other Case)
Income Tax Act 2058 (2078.04.01 to till date)
Section 95A was amended by Financial Act, 2078 (2021) and this was effective since 2078.04.01
(Unlisted Securities: 10% on gains on disposal by Resident Natural Person, 15% for Resident Entity and 25% on in other Case)
(Listed Securities: 5% on gains on disposal by Resident Natural Person for securities held for more than 365 days, 7.5% on gains on disposal by Resident Natural Person for securities held for less than 365 days, 10% for Resident Entity and 25% on in other Case)
DTAA Provision relating to Capital Gains
Article 13 of OECD model DTAA is related to Capital Gains.
In case of DTAA with Austria, Mauritius, Bangladesh and Norway, the state where the entity whose interest is being disposed of doesn’t hold any taxing right.
In case of DTAA with India, Qatar, Thailand and South Korea, the state where the entity whose interest is being disposed of also holds taxing right.
In case of DTAA with China, Pakistan and Srilanka, the state where the entity whose interest is being disposed of also holds taxing right but only if the alineator has at least 25% interest in such entity.
These can be understood in detail from the actual provision below.
- Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
- Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State.
- Gains from the alienation of ships or aircraft operated in international traffic, or movable property pertaining to the operation of such ships or aircraft, shall be taxable only in the Contracting State of which the alienator is a resident.
- Gains from the alienation of shares of the capital stock of a company the property of which consists directly or indirectly principally of immovable property situated in a Contracting State may be taxed in that State.
- Gains from the alienation of shares other than those mentioned in paragraph 4 in a company which is a resident of a Contracting State may be taxed in that State.
- Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3, 4 and 5 shall be taxable only in the Contracting State of which the alienator is a resident.
- Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
- Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State.
- Gains from the alienation of ships or aircraft operated in international traffic or of movable property pertaining to the operation of such ships or aircraft shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.
- Gains from the alienation of any property other than that referred to in paragraphs 1, 2 and 3, shall be taxable only in the Contracting State of which the alienator is a resident
- Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
- Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such a fixed base, may be taxed in that other State.
- Gains from the alienation of ships or aircraft operated in international traffic or movable property pertaining to the operation of such ships or aircraft shall be taxable only in the Contracting State in which the place of head office or of effective management of the enterprise is situated.
- Gains from the alienation of shares of the capital stock of a company the property of which consists directly or indirectly principally of immovable property situated in a Contracting State may be taxed in that Contracting State.
- Gains from the alienation of shares other than those mentioned in paragraph 4 representing a participation of at least 25% in a company which is a resident of a Contracting State may be taxed in that State.
- Gains from the alienation of any property other than that referred to in paragraphs 1 to 5, shall be taxable only in the Contracting State of which the alienator is a resident.
- Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
- Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State.
- Gains from the alienation of ships or aircraft operated in international traffic or movable property pertaining to the operation of such ships or aircraft shall be taxable only in the Contracting State of which the enterprise is a resident.
- Gains from the alienation of shares of the capital stock of a company the property of which consists directly or indirectly principally of immovable property situated in a Contracting State may be taxed in that State.
- Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3 and 4 shall be taxable only in the Contracting State of which the alienator is a resident.
- Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
- Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State.
- Gains from the alienation of ships or aircraft operated in international traffic or movable property pertaining to the operation of such ships or aircraft shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.
- Gains from the alienation of any property other than that referred to in paragraphs 1, 2 and 3 shall be taxable only in the Contracting State of which the alienator is a resident.
- Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
- Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State.
- Gains from the alienation of ships or aircraft operated in international traffic, or movable property pertaining to the operation of such ships or aircraft shall be taxable only in the Contracting State in which the profits of the enterprise are taxable according to Article 8 of this Agreement.
- Gains derived by an enterprise of a Contracting State from the alienation of containers (including trailers and related equipment for the transport of containers) used for the transport of goods or merchandise shall be taxable only in that Contracting State, except insofar as those containers or trailers and related equipment are used for transport solely between places within the other Contracting State.
- Gains from the alienation of any property other than those referred to in the preceding paragraphs shall be taxable only in the Contracting State of which the alienator is a resident.
- Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
- Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State.
- Gains derived by a resident of a Contracting State from the alienation of ships or aircraft operated in international traffic or movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that State.
- Gains from the alienation of shares of the capital stock of a company the property of which consists directly or indirectly principally of immovable property situated in a Contracting State may be taxed in that State.
- Gains from the alienation of shares other than those mentioned in paragraph 4 representing a participation of 25 per cent or more in a company which is a resident of a Contracting State may be taxed in that State.
- Gains from the alienation of any property other than that referred to in paragraph 1, 2, 3, 4 and 5 shall be taxable only in the Contracting State of which the alienator is a resident.
- Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
- Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State including such gains from the alienation of such permanent establishment (alone or with the whole enterprises) or of such fixed base, may be taxed in that other State.
- Gains from the alienation of ships or aircrafts operated in international traffic or movable property pertaining to the operation of such ships or aircrafts, shall be taxable only in the Contracting State in which the place of effective management is situated.
- Gains from the alienation of stocks and shares of a company may be taxed in the Contracting State in which they have been issued.
- Gains from the “alienation” means the sale, exchange, transfer, or relinquishment of the property or the extinguishment of any rights therein or the compulsory acquisition thereof under any law in force in the respective Contracting State.
- Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3 and 4 shall be taxable only in the Contracting State of which the alienator is a resident.
- Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
- Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such a fixed base, may be taxed in that other State.
- Gains derived by an enterprise of a Contracting State from the alienation of ships or aircraft operated in international traffic or movable property/pertaining to the operation of such ships or aircraft, shall be taxable only in that State.
- Gains from the alienation of any property other than that referred to in paragraphs 1,2and 3 of this Article and paragraph 3 of Article 12, shall be taxable only in the Contracting State of which the alienator is a resident. Nothing in this paragraph shall prevent either Contracting State from taxing the gains or income from the sale of transfer of shares or other securities.
- Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
- Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such a fixed base, may be taxed in that other State.
- Gains derived by an enterprise of a Contracting State from the alienation of ships or aircraft operated in international traffic or movable property/pertaining to the operation of such ships or aircraft, shall be taxable only in that State.
- Gains from the alienation of stocks and shares of a company representing a participation of 25% or more may be taxed in the contracting state in which they have been issued.
- Gains from the alienation of any property other than that referred to in the preceding paragraphs shall be taxable only in the contracting state of which the alienator is a resident.
- The term “alienation” means sale, exchange, transfer or relinquishment of the property or the extinguishment of any rights therein or the compulsory acquisition thereof under any law in force in the respective contracting states.
- Capital gains derived by a resident of a Contracting State from the alienation of immovable property, as defined in paragraph 2 of Article 6 or from the alienation of stocks and shares in a company, the assets of which consist principally of immovable property, may be taxed in the State in which such property is situated.
- Capital Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State.
- Capital Gains from the alienation of ships or aircraft operated in international traffic or of movable property pertaining to the operation of such ships or aircraft shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.
- Capital Gains from the alienation of any property other than that referred to in paragraphs 1, 2 and 3, shall be taxable only in the Contracting State of which the alienator is a resident.
Domestic Laws v. DTAA Provision
Income Tax Act 2058 on International Agreements
Section 73(1): In case any individual is liable to pay tax under this act or current Nepal Law on any income earned by him, if any tax is payable on the same income in a foreign country, GON may conclude an international agreement with the concerned foreign government to avoid such double taxation.
Section 73(2): This subsection shall apply where the Department receives a request from the competent authority of another country pursuant to an international agreement with Nepal for the collection in Nepal of an amount payable by a person, the tax debtor under the tax laws of the other country.
Section 73(3): Where Section 73(2) applies, the Department may, by serving a notice in writing, require the tax debtor to pay the amount to the Department by the date specified in the notice for transmission to the competent authority.
Section 73(4): This subsection shall apply where an international agreement provides that Nepal will exempt income or a payment or subject income or a payment to reduced tax.
Section 73(5): Where Section 73(4) applies, the exemption or reduction shall not be available to any entity:
a. Who, for the purposes of the agreement, is a resident of the other contracting state; and
b. 50% or more of whose underlying ownership is held by “individuals” or “entities in which no individual has an interest” and who, for the purposes of the agreement, are not residents of that other contracting state or Nepal.
Clarification: For the purpose of this section, international agreement means a treaty or other agreement with a foreign government that has entered into force in Nepal and providing for the following:
a. Relief of double taxation and the prevention of fiscal evasion; or
b. Reciprocal administrative assistance in the enforcement of tax liabilities
Does Domestic Laws prevail over International Agreements
- The entity claiming the benefit is an entity that is considered a resident (for the purpose of the DTA) of the country with which the DTA has been entered into.
- 50% or more of the vested ownership of the entity is owned by natural persons or entities (in which no natural person has an interest), which are not residents of Nepal and/or the country with the DTA.
| Country | DTAA Entered On | Remarks |
| India | 1987 | Before Income Tax Act 2058 |
| Norway | 1996 | Before Income Tax Act 2058 |
| Thailand | 1998 | Before Income Tax Act 2058 |
| Sri Lanka | 1999 | Before Income Tax Act 2058 |
| Mauritius | 1999 | Before Income Tax Act 2058 |
| Austria | 2000 | Before Income Tax Act 2058 |
| China | 2001 | Before Income Tax Act 2058 |
| Pakistan | 2001 | Before Income Tax Act 2058 |
| South Korea | 2003 | After Income Tax Act 2058 |
| Qatar | 2007 | After Income Tax Act 2058 |
| Bangladesh | 2019 | After Income Tax Act 2058 |
Ncell Case says Otherwise?
२४. प्रस्तुत विवादको सन्दर्भमा रेनोल्ड्सको सेयर टेलिया सोनेरा नर्वे नेपाल होल्डिङसको नाउँमा रही सो निकायले एक्जिएटा इन्भेष्टमेन्टलाई बिक्री गरेको र नेपाल र नर्वेबीचमा भएको दोहोरो करसम्बन्धी सम्झौताबमोजिम नेपालमा पुँजीगत लाभकर नलाग्ने जिकिर पनि विपक्षी एनसेल र रेनोल्ड्सको तर्फबाट लिइएको छ । प्रस्तुत विवादमा निहित स्वामित्वको निसर्ग भई ऐनको दफा ५७(१) को अवस्था विद्यमान रहेको हुँदा विपक्षीहरूको जिकिर स्वीकार गर्न सकिने अवस्था देखिँदैन । साथै टेलिया सोनेरा नर्वे नेपाल होल्डिङ्स आफैँ पनि मध्यस्थ कम्पनी भई यसको १०० प्रतिशत सेयर नेदरलेण्डमा स्थापित टेलिया सोनेरा एसिया होल्डिङ्स वि.भि. को रहेको देखिन्छ । वास्तविक कारोबार नगरी फगत सन्धिको सुविधा लिने (Treaty shopping) कार्यलाई निरूत्साहित गर्ने उद्देश्यबाट समेत आयकर ऐन, २०५८ को दफा ७३ उपदफा (५) ले कर छुट नपाउने व्यवस्था गर्दै सो उपदफाको देहाय खण्ड (ख) मा भएको व्यवस्थाअनुसार कुनै निकायको निहित स्वामित्वको पचास प्रतिशत वा सोभन्दा बढी हिस्सा अन्य कुनै निकायद्वारा ग्रहण गरिएको र त्यस्तो व्यक्ति वा निकाय सम्झौताको अर्को पक्ष वा नेपालको पनि बासिन्दा नभएको अवस्थामा अन्तर्राष्ट्रिय सम्झौताबमोजिमको सुविधा नपाइने भन्ने व्यवस्था राखिएको हुँदा र उक्त व्यवस्थाअनुसार टेलिया सोनेरा नर्वे नेपाल होल्डिङ्सको ५० प्रतिशतभन्दा बढी स्वामित्व नेदरलेण्डमा संस्थापित टेलिया सोनेरा एसिया होल्डिङ्सको रहेको र नेदरलेण्डसँग नेपालको त्यस्तो कुनै सम्झौता भए गरेको नपाइँदा टेलिया सोनेरा नर्वे नेपाल होल्डिङ्सले नर्वे र नेपालबीच भएको दोहोरो कर रोक्नेसम्बन्धी सन्धिको फाइदा पाउने अवस्था पनि देखिँदैन। Full Ncell Case Here. My blog on Ncell Case Here.
Here are the facts regarding the underlying ownership structure of Ncell.
- 80% of Ncell Pvt. Ltd. (Nepal) is held by Reynolds Holdings (Mauritius)
- 100% of Reynolds Holdings (Mauritius) is held by Telia Sonera Norway Nepal Holdings (Norway)
- 100% of Telia Sonera Norway Nepal Holdings (Norway) is held by Telia Sonera Norway Asia Holdings As (Norway)
- 75.45% of Telia Sonera Norway Asia Holdings As (Norway) is held by Telia Sonera UTA Netherlands (Netherlands) and 24.55% of Telia Sonera Norway Asia Holdings As (Norway) is held by SEA Telecom Investment BV (Netherland)
- 100% of Telia Sonera UTA Netherlands (Netherlands) is held by Telia Sonera Finland (Finland)
- 100% of Telia Sonera Finland (Finland) is held by Telia Sonera AB (Sweden)
As per ITA, Telia Sonera Company Sweden (Sweden) had underlying ownership in Ncell Pvt. Ltd. (Nepal) equal to 80%×100%×100%×75.45%×100%=60.36%
The transaction was: 100% of Reynolds Holdings (Mauritius) was bought by Axiata Investment (UK) from Telia Sonera Norway Nepal Holdings (Norway)
- 100% of Axiata Investment (UK) is held by Axiata Berhad (Malaysia)
However be the arrangement of conduit companies, it is important to note here that सर्वोच्च अदालत, बृहत् पूर्ण इजलास (सम्माननीय प्रधानन्यायाधीश श्री चोलेन्द्र शमशेर ज.ब.रा., माननीय न्यायाधीश श्री मीरा खडका, माननीय न्यायाधीश श्री विश्वम्भरप्रसाद श्रेष्ठ, माननीय न्यायाधीश, डा. श्री आनन्दमोहन भट्टराई, माननीय न्यायाधीश श्री टंकबहादुर मोक्तान) was held as “treaty shoping arrangement” and the sellers of the Ncell Transaction were denied the benefit of DTAA.
However, in view of the facts that (1) “Limitation of Benefits” clause doesn’t specifically exists in DTAAs other than with India; (2) Most of the DTAAs were entered before the enactment of Income Tax Act 2058; and (3) Domestic Laws cannot supercede Treaty Provision as per Nepal Treaty Act 1990; this all seems like a new mess.