The government has taken a reverse course in the process of granting tax exemption to Dolma Impact Fund, which is registered in Mauritius and has been investing in a dozen and a half companies in Nepal. Just two weeks after the decision to exempt Dolma from the 25 percent capital gains tax and terminate the agreement with Mauritius, the government has sought the opinion of the Ministry of Law and Foreign Affairs on whether or not to do so.

Since Dolma will make a profit of 1.17 billion rupees when she sells her 2.6 million shares in Makar Jitumaya Suri Hydropower Company, a potential capital gains tax of 294.4 million rupees will be incurred. However, based on the instructions of the Ministry of Finance and the Department of Internal Revenue, the Internal Revenue Office had decided that Dolma will not have to pay capital gains tax based on the agreement with Mauritius. At the same time, the Council of Ministers on 12 Kartik also decided to cancel the agreement with Mauritius. 

After the dispute, Prime Minister Sushila Karki had sought information from Chief Secretary Ek Narayan Aryal about the decision. Aryal had informed that the decision of the Council of Ministers would not be verified immediately. After discussing with the Prime Minister, the Chief Secretary has the practice of verifying the decision of the Council of Ministers. Finance Minister Rameshwor Khanal and Director General of the Department of Internal Revenue Madan Dahal, on the other hand, have been claiming that the decision to grant tax exemption to Dolma was in accordance with the law. 

Meanwhile, the government has sought opinions from the Ministries of Foreign Affairs and Law. Foreign Secretary Amrit Bahadur Rai confirmed that the file regarding tax exemption for Dolma Impact Fund has been received for opinion. ‘The file has been received for opinion, we cannot comment on it now,’ he said. A foreign ministry official said that the file was received from the Finance Ministry a few days ago and that it is being studied. ‘An opinion has been sought on what will be applicable regarding tax treaties and laws. What is the treaty that Nepal has signed with Mauritius, whether it has been used in the past, and with which other countries such treaties have been concluded,’ the official said.

An official from the Law Ministry also informed that discussions are underway on the file received from the Finance Ministry for opinion. However, Law Secretary Parashwar Dhungana said that the file may have been received by the concerned department but he was busy for a few days and could not pay attention to it.  In a ruling delivered on 14 Magh 2080, the Supreme Court ruled that multilateral treaties, including those on human rights, have the status of supralegality, but bilateral treaties, such as investment promotion, do not have a status superior to prevailing law.

The dispute between MCA Nepal, the US-funded MCC implementing agency, and Tata Projects Limited, a subsidiary of the Tata Group of India, which had submitted a bid for the construction of the power transmission project, had reached the Supreme Court. MCA Nepal had invited bids on 12 Mangsir 2079 with a deadline of 13 Chaitra 2079 for the construction of three transmission lines. However, MCA had canceled the bids on the grounds that the bids were higher than the cost estimate.

Tata had filed a writ petition in the Supreme Court to quash MCA Nepal's decision, claiming that it should have won the contract since it had offered the lowest amount under the Public Procurement Act of Nepal, 2063. During the debate on the writ, the Supreme Court had clarified that the dispute arose whether Nepal's law or the treaty agreement should apply.

The bench of Supreme Court Justices Hari Prasad Phuyal and Sharanga Subedi has reminded that treaties are also classified according to Nepal's Treaty Act 2047. 'Generally, treaties of an extraordinary nature seem to include treaties on matters that can directly affect the independence, sovereignty and geographical integrity of the nation,' the Supreme Court has said. 'International human rights treaties have also been given a constitutional status by making special provisions in the constitution.

Similarly, documents are prepared under separate project guidelines and procedures for the implementation of treaty agreements in relation to loans, grants and development agreements.' The Supreme Court has held that such documents are recognized as law. The Supreme Court had dismissed Tata's writ petition, holding that since MCA Nepal is a loan grant program, the contract can be canceled according to its guidelines.

However, the Supreme Court has held that bilateral treaty agreements are based on reciprocity. ‘For example, bilateral treaties including investment promotion and protection agreements, double taxation agreements, extradition treaties and other commercial agreements fall under this. Such treaties seem to acquire the status of a majority only on the basis of parallelism and reciprocity,’ the Supreme Court has said. 

The Supreme Court has also cited the precedent set by the Supreme Court in 2063 BS that the prevailing law of Nepal will be applicable in such a situation, ‘Regarding the writ petition filed for the annulment of the trade treaty concluded between Nepal and India since there are provisions in the Economic Ordinance that contradict the provisions of the trade treaty concluded between Nepal and India – treaties to which Nepal is a party may be applicable as law, but they cannot be called law. Being law and being law-like are two different things.’ 

In the case of bilateral and tripartite treaties, the Supreme Court has guided the adoption of conditions such as universal equality, reciprocity, geographical integrity and national interest and impact on the country in various provisions of the Constitution. Tax experts claim that a company registered in Mauritius cannot get tax exemption on income generated in Nepal due to national interest and impact on the country. 

Even though there is a double taxation agreement (treaty) between Nepal and Mauritius, Nepal's law is clear on the subject of income tax for companies like Dolma. Section 73, Sub-section 5 (b) of the Income Tax Act 2058 BS states that a company registered in a country that has a treaty with Nepal will not get tax exemption if the citizens of that country have invested less than 50 percent in that country. Mauritius' investment in Dolma Management, which is registered with an office in Cyber ​​City, Mayawa Tower, Mauritius, is only 0.75 percent. 99.25 percent of the investment in the company in Mauritius was brought to Nepal by bringing it from various countries.