Chinese solar firms under tax scrutiny

Tax dept assessing permanent establishment of the companies

- Utpal Bhaskar

New Delhi: India’s income tax department is scrutinizing at least 40 Chinese solar module makers, including Trina Solar Ltd and Longi Green Energy Technology Co. Ltd, along with their Indian distributors, for suspected tax evasion, two people familiar with the development said.

The tax department is examining their business models, transactions, invoices and business strategies to ascertain their permanent establishment (PE) status. The concept of PE is crucial for determining the tax liability of foreign companies operating in a particular country. Tax officers calculate the tax liability of foreign entities operating in India, taking into account tax treaties and local laws.

When a foreign entity operates in India through a PE, it may be liable to pay taxes on the profits generated within the country. However, in the absence of a PE, there is no tax liability in India as no income accrues within the country.