Legal analysis: between the parent company and its subsidiaries directly controlled by 100%, the parent company transfers its equity or assets to its subsidiaries according to the net book value, and the parent company receives 100% equity payment from its subsidiaries. The parent company is regarded as increasing long-term equity investment, while the subsidiary company is regarded as accepting investment (including capital reserve, the same below). The tax basis for the parent company to obtain the equity of the subsidiary company shall be determined by the original tax basis when the equity or assets are transferred.
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.