Prime Minister Narendra Modi met Facebook Chief Operating Officer Sheryl Sandberg yesterday. The goody goody reports are all over the papers today.

In a nutshell, this is what they talked about:

1. Sheryl said India is a very important country for Facebook.

2. NaMo wants to use Facebook for governance & bring more tourists to India.

3. NaMo wants Facebook to help commemorate Mahatma Gandhi’s 150th birth anniversary.

Nice.

Facebook COO Sheryl Sandberg & Indian Prime Minister Narendra Modi
Facebook COO Sheryl Sandberg & Indian Prime Minister Narendra Modi

Now we’re not sure if these things were discussed in private. But there is one particularly important issue we wish they had.

Paying Taxes

Facebook makes a bit of money from India. It isn’t much now. But it will make a lot more. And that’s going to have to be taxed– fair and square. If what Google does in India to ‘minimize tax’ liabilities is anything to go by and the treasury is in bad shape like the government says, this is a point to be stressed.

In many countries, large corporations like Google minimize taxes by setting up an office in Ireland (a tax haven) and selling advertising outside of US through the subsidiary.

Case in point: The tax department in India has alleged that it has transferred an amount of Rs 119.83 cr to Google Ireland without deducting tax at source as required by treaties between India and Ireland. That was way back in 2008-09. Since then, Google’s revenues have grown multi-fold.

As we’d pointed out earlier, once the money reaches Ireland, Irish tax laws come into effect (effective taxes are lower in Ireland). But then, the Ireland subsidiary pays out “royalties” to Google Ireland Holdings based in Bermuda.

The Bermuda entity is held by two Irish companies, one of which generates expenses which the other pays. The money is collected in Bermuda, by the other company. It goes through Netherlands, where Irish laws exempt royalties to other EU member nations. (For more, read this piece.)

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