(1) There are two loan relationships: one is that the parent company borrows from the bank, and the other is that the subsidiary company borrows from the parent company.
(2) The subsidiary and the parent company are related parties. According to Guo Shui Fa [2000] No.84 document, if a taxpayer borrows more than 50% of its registered capital from a related party, the interest expenses of the excess part shall not be deducted before tax. However, if the parent company has sufficient evidence to prove that the relevant funds are obtained from financial institutions, this lending relationship can be treated as a normal inter-enterprise lending relationship, rather than a related party relationship.
(3) When a subsidiary actually pays interest, it shall be regarded as paying interest to the parent company first, and then the parent company pays interest to the bank. When the parent company receives the interest paid by the subsidiary, it shall make income and issue a legal certificate to the subsidiary for the pre-tax deduction of the interest received. The pre-tax deductible interest paid by the subsidiary to the parent company shall be calculated at an interest rate not higher than the same period and similar loan interest rate calculated by the financial institution.
Legal basis: Branch companies can be established in Article 14 of People's Republic of China (PRC) Company Law. The establishment of a branch company shall apply to the company registration authority for registration and obtain a business license. A branch company does not have legal person status, and its civil liability shall be borne by the company.
A company may set up subsidiaries, which have legal personality and independently bear civil liabilities according to law.