Chinese solar cos under tax lens

Tax department assessing permanent establishment of these companies

- Utpal Bhaskar

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.

This assumes significance, given solar modules account for more than 60% of the total project cost, and India, which is running the world's largest clean energy programme, imported $3 billion worth of solar photovoltaic (PV) cells, panels, and modules in FY22. To check imports from China, India imposed a basic customs duty of 25% on solar cells and 40% on modules from April 1 last year.