Kumar Lama, 46, is accused of torturing two men when he was in charge of a barracks in Nepal in 2005, at the height of the Himalayan nation's decade-long conflict between Maoist rebels and government forces.
He was arrested in England in January, sparking a diplomatic row between Britain and Nepal, which angrily condemned the move to prosecute him there.
Lama was detained under British law, which allows prosecutors to act against people suspected of torture no matter where it took place in the world.
"He is a UN expert and is entitled to immunity," defence barrister James Lewis told the court.
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Lewis added that prosecutors agreed that the alleged offences, if true, were carried out "in an official capacity" -- and that Lama should possibly also enjoy immunity on this basis.
Smartly-dressed in a light grey suit, striped shirt and navy blue tie, Lama sat in the dock with an interpreter by his side.
"It simply wasn't done in this case," Lewis said. "That is the complaint that was made by the prime minister of Nepal."
But British prosecutors argue that Lama cannot be granted immunity if accused of torture, which they say is an international crime.
Prosecution lawyer Bobbie Gheema also argued that even if Lama was extradited and faced a trial in Nepal over the allegations, he might not be adequately punished if found guilty.
Lama has already been convicted in Nepal of one of the two charges he faces in Britain, and was punished with a ban on being promoted for a year, the court heard.