DRI Files Tax Evasion Charges Against Cotiviti Nepal

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DRI files a case against Cotiviti Nepal for alleged tax evasion.
Cotiviti Nepal faces a record penalty demand of Rs. 5.18 billion, totaling Rs. 10.36 billion.
DRI alleges Cotiviti failed to report changes in share ownership and pay VAT on services exports.

The Department of Revenue Investigation (DRI) has filed a case against Cotiviti Nepal, a foreign-owned information technology (IT) company, for alleged tax evasion.

Department of Revenue Investigation files a case against Cotiviti Nepal

DRI lodged the case at the Patan High Court on March 31, 2024, seeking Rs. 10.36 billion from the company, including Rs. 5.18 billion in allegedly evaded taxes and a Rs. 5.18 billion penalty.

This is the first time a single business entity has faced such a substantial penalty demand, according to DRI General Director Nawa Raj Dhungana.

Cotiviti Nepal Pvt. Ltd. is a foreign direct investment company and a subsidiary of the American IT company Cotiviti Inc. Employing over 600 software engineers in Nepal, it was established in 2004 and has undergone name changes, most recently operating under the name of Cotiviti.

The department alleges that Cotiviti failed to inform the Medium Level Taxpayer Office when its share ownership changed over the years and leaked revenue by not paying tax per the Income Tax Act, 2022 (2058) and the Value-Added Tax Act, 1996 (2052).

Under Section 7 of the Value-Added Tax Act, 1996, services listed in Schedule-2 are taxed at a rate of zero percent. Section 2(a) of Schedule-2 states that services provided by a person in Nepal to someone outside Nepal who doesn’t have any business connections or representatives in Nepal will be taxed at zero rates.

In simple terms, under this law, value-added tax (VAT) is not charged on exports of goods and services.

However, the department mentions in its press release that Cotiviti Nepal Pvt. Ltd., acting as a subsidiary of Cotiviti Inc., conducting business for the parent company and representing its interests in Nepal, does not qualify for the zero percent tax rate outlined in Section 2(a) of Schedule-2 of the Value-Added Tax Act, 1996.

DRI states that since it appears Cotiviti Nepal is solely exporting its service to its parent company, Cotiviti Inc., the company is not eligible for the zero percent tax.

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