No tax claims following sale of Ncell
Swedish Television’s investigative program Uppdrag Granskring broadcasted a program on 8 February, on Telia Company’s sale of its stake in Ncell to Axiata in April 2016. Telia Company has ensured that tax has been paid on the local transaction, while the foreign ownership is to be declared where the seller resides – in Norway. During Telia Company’s years as majority shareholder, Ncell invested more than SEK 7 billion in network and infrastructure extensions, and paid approximately SEK 3 billion in corporate taxes.
Telia Company has met all tax requirements on the Nepalese operation Ncell during the years 2008-2016, and in relation to the sale of the subsidiary in 2016.
“We are confident in the assessment we have made together with international and local experts”, says Johan Dennelind, President and CEO of Telia Company.
Tax an important question
Among other things, Uppdrag Granskning highlighted the sale of Ncell to Axiata, a listed Malaysian company, in April 2016.
Due to the complex ownership structure, the transaction consisted of two parts: one foreign where the seller was a partly Telia-owned company registered in Norway, and one local part in Nepal. There are no tax obligations in Nepal on the foreign part of the transaction. Instead any taxes levied on the transaction should be paid in Norway, a country which has a double taxation agreement with Nepal in which Nepal has waived its right to tax in favour of Norway. Tax on the local transaction has been paid in Nepal by the local shareholder.
Why use such a structure?
“The ownership and structure was already in place when the current management joined Telia. It is that ownership and structure which we have had to relate to,” says Johan Dennelind. He continues:
“Tax is a very important sustainability question for Telia Company. It goes without saying that tax should be paid in the country where the profits have been generated, and country-by country reporting is a way for us to be transparent on this very topic. During our years as majority shareholder in Ncell, the company paid approximately SEK 3 billion in corporate taxes and was, for a number of years, the country’s largest taxpayer.”
No formal claims
But Nepalese civil servicemen and politicians are telling Uppdrag Granskring that Telia Company should pay tax in Nepal for the sale of Ncell?
“Paying taxes that lack support in the law is not an alternative for us, and there have also not been any formal tax claims directed towards the company. We were in April of 2016 asked by the local tax authorities to provide them with a tax declaration. We immediately replied that we do not believe that we are under any obligation to do so. We have not heard from the tax authorities since. We are serious when we say that we are a transparent company that believes in responsible business, and this means that we, for example, must refrain from giving in to demands for taxes and other payments that lack legal support.”
“Corruption is a problem in Nepal. The country can be found in place 130 on Transparency International’s corruption index. It is therefore very important to have a well-functioning program for ethics and compliance in place even before you enter a country with these kinds of problems. We had such a program in place when we left Nepal and we are confident in the assessment that we have made together with international and local experts”, says Johan Dennelind.
Correct and sustainable
Telia Company’s ambition is to leave Region Eurasia over time, and this is likely to be completed during 2017. The exit should be done in a responsible way.
“It’s about doing the right thing and standing up for our values throughout the divestment process. We work with a very comprehensive program where counterparty risk, cash flow and tax management are important components. But we also work to ensure that the program we establish around regulatory compliance is understood and delivered to the counterparty”, explains Johan Dennelind.
Does the sale of Ncell fulfil these requirements?
“Sustainability played an important role in preparation for the sale of Ncell. We feel confident that we have done the right thing. It is, for example, obvious to us that we can’t pay taxes and fees that lack support in the law. The buyer of Ncell – Axiata – fulfilled the requirements that we place on a responsible buyer. Among other things, we discussed with Axiata their view on sustainable and responsible business”, says Johan Dennelind. He continues:
“I pointed out in my interview with Uppdrag Granskning that our responsible exit included several components and that we, if we were to pay taxes that lack legal support, would be acting irresponsibly. We would, in that case, be having a completely different discussion about right and wrong. We would no doubt receive strong criticism from both owners and other interested parties regarding negligence of the owners’ money.”
Small financial loss
So what was the result of Telia Company’s sale of Ncell?
“The overall financial result of Telia Company’s investment in Nepal, when all parts are taken into account, is likely to be a loss. It is, however, very important to remember that Nepal profited from the business. During our years as majority shareholder, Ncell invested approximately SEK 7 billion in licenses and networks, it introduced 3G technology and in doing so ensured that rural areas received access to the internet. In March 2016, Ncell’s 2G network covered 92 percent of Nepal. At the same time, Ncell employed thousands of people, direct and indirect, and paid SEK 3 billion in corporate taxes. The fact that Ncell has played an important role in the growth of Nepal is undeniable. We estimate that the company has contributed 1-2 percent of the country’s GDP.”
The program also claims that an eventual tax claim will total SEK 4 billion?
“We do not comment on rumors or speculation. We feel confident in our assessment.”
From Telia Company’s point of view, is this a completed transaction?
“Yes, the sale of Ncell was completed in April 2016, and with that the transaction closed.”