G20 meet's critique of MNCs profit shifting has a bearing on Vodafone

As bureaucracy and acronyms multiply, tedium creates a yawning gap between public perception and the process that spawns bureaucracy and acronyms. This is truer of the G20, which began with a bang to muster large economy coordination to contain the fallout of the financial crisis of 2008 and has since sustained on periodic meetings of finance ministers and central bankers, besides summits, than of traditional agencies of multilateral languour such as the UN. But it would be a big mistake to let tedium obscure the significance of the processes that are set in motion and/or facilitated at G20 meets. The developed world was particularly taken in by the relief offered by the G20 finance ministers’ meet at Moscow over the weekend to Japan, by not harping on the theme of currency wars that had gathered momentum after the yen’s 20% depreciation through state action to boost Japanese competitiveness. That relief served to boost Japanese stocks on Monday. India should particularly note the endorsement of the concern voiced by the OECD over tax avoidance by large companies that operate in many countries.

The final communiqué says, “We are determined to develop measures to address base erosion and profit shifting, take necessary collective actions and look forward to the comprehensive action plan the OECD will present to us in July.” A multilateral convention on mutual administrative assistance is already underway and standards are being developed for exchange of relevant information on a continuous basis. Writing in this newspaper last Saturday, German finance minister Wolfgang Schauble said, “G20 members should cooperate much more closely in ensuring that all international businesses not only pay their fair share of taxes, but also that they do so in those markets and societies where they generate their profits.” India should endorse this position. It strengthens the case for lifting the corporate veil in transactions such as Vodafone’s acquisition of Hutch-Essar and collecting the tax due on value created in the Indian economy. Globalisation yields many benefits but must be governed to our advantage. We must have the will to do that.