Question

Explain what subsidiaries are and the different tax treatment impacts of their use.

Answer 1

Simply,a subsidiary company is a company owned and controlled by another company. The owning company is called a parent company or a holding company.In other words,a subsidiary is a company with stock more than 50% is controlled by another company, which is usually referred to as the parent company or the holding company.The parent company holds a controlling interest in the subsidiary company, and in cases where a subsidiary is 100% owned by another firm, the subsidiary is referred to as a wholly owned subsidiary.

From an accounting standpoint, a subsidiary is a separate company, so it would keep its own financial records, bank accounts, assets, and liabilities. Any transactions between the parent company and the subsidiary must be recorded.

From tax standpoint, a subsidiary is a separate taxing entity. Each subsidiary has its own tax ID number and it pays all its own taxes, according to its business type. If the parent company owns 80% or more of shares and voting rights for a subsidiary, it can submit a consolidated tax return to take advantage of offsetting profits of one subsidiary with losses from another. The subsidiary must consent to be included in this consolidated tax return.