Two common tax-related problems in business dealings between parent and subsidiary companies.
A company has its own office building, so it set up a subsidiary to develop it. The subsidiary works in the office building of the parent company, but the parent company does not charge the subsidiary rent for the site. As a directly affiliated company, the parent company does not treat the office space provided free of charge as sales in the enterprise income tax. According to the provisions of China's tax law, the expenses incurred by the parent company in providing services to its subsidiaries need to conform to the principle of fair trade of independent enterprises. Therefore, the tax authorities can completely require the parent company to pay value-added tax and enterprise income tax in accordance with the regulations when dealing with the matter that the parent company provides office space to its subsidiaries free of charge.
Another common business is that the parent company provides funds to its subsidiaries for free. China's tax collection and management law stipulates that the capital transactions between affiliated enterprises should be collected and paid according to the business transactions of independent enterprises. In order to avoid tax payable, the tax authorities have the right to make adjustments if they do not collect prices and expenses according to the business dealings of independent enterprises. In addition, the parent company will provide the borrowed funds to its subsidiaries free of charge, and the interest expenses paid are irrelevant income and cannot be deducted before income tax. The subsidiary cannot obtain the invoice.
Therefore, there are still many tax-related risks in the related business between the parent company and its subsidiaries. In addition to providing office space and funds free of charge, there are also social security accumulation funds paid by the parent company for its subsidiaries and outstanding employees rewarded by the parent company, all of which need to pay attention to tax-related risks. The expenses of "five insurances and one fund" paid by the parent company for employees working in subsidiaries shall be paid by subsidiaries and deducted before tax. Similarly, the rewards given by the parent company to the employees of its subsidiaries cannot be deducted before tax.
Can the branch office invoice the head office?
The branch company can invoice the head office.
According to the relevant regulations, if the head office and its branches are not in the same county (city), they shall report and pay taxes to the competent tax authorities in their respective places. After obtaining the approval of the tax authorities at higher levels or the financial and tax authorities authorized by them, the head office may declare and pay taxes to the competent tax authorities where the head office is located. If the consolidated tax return is not handled, the input tax of the branch shall not be deducted by the head office, but by the branch itself. At the same time, the branch will issue an export invoice.
What are the tax-related risks in the operation of parent-subsidiary companies?