A subsidiary is a business that is owned by the parent company of another business. Although they are ultimately under the supervision of their parent firm, subsidiaries operate autonomously. One of the problems that comes up is whether or not subsidiaries are liable for paying their own taxes or if the parent business is accountable for doing so.
Subsidiaries are accountable for their own tax obligations, so the answer to this question is yes. The tax authorities recognize them as independent entities even though the parent firm owns them. As a result, they must submit their tax returns and pay taxes based on their earnings.
The main firm could, however, occasionally be held responsible for the tax liabilities of its subsidiaries. For instance, the parent firm might be required by the tax authorities to pay the unpaid taxes if the subsidiary doesn’t. This is referred to as the “doctrine of piercing the corporate veil” and is used when a subsidiary is thought to be nothing more than a parent company’s tool.
On the other hand, a parent business cannot be held responsible for the recklessness of a subsidiary. This is so that they can be held accountable for their own deeds and judgments as they are different legal entities. Therefore, the parent business cannot be held responsible for the losses in the event that a subsidiary is sued for carelessness.
A parent business must have legal standing before it may file a lawsuit on behalf of a subsidiary. This implies that the parent firm must be able to demonstrate that it has directly incurred harm or injury as a result of the subsidiary’s acts. The parent firm cannot bring a lawsuit on behalf of its subsidiary if it lacks standing.
Two subsidiaries could combine to create a new business. This is referred to as an amalgamation or merger. The new business will be legally distinct from its parent firms and have its own identity. The parent firms will no longer exist, and the new business will take up their obligations and liabilities.
And finally, a subsidiary is not regarded as a parent firm asset. Despite being owned by the parent corporation, the subsidiary is given separate legal status. Because of this, it has separate assets, liabilities, and responsibilities from the parent firm.
In conclusion, subsidiaries are responsible for paying their own taxes, but in some circumstances, the parent firm may be held liable for those taxes. Similar to this, a parent business cannot be held accountable for the actions of its subsidiary and can only bring a lawsuit on the latter’s behalf if it has legal standing. It is possible for two subsidiaries to combine to create a new business with a distinct legal personality from its parent firms. And finally, a subsidiary is not regarded as a parent firm asset.
A triangle merger is a sort of merger or acquisition in which the target firm is acquired by a subsidiary of the purchasing corporation. The target company is subsequently combined with the subsidiary, making the target company a subsidiary of the purchasing corporation. Because there are three parties involved in this form of merger—the target firm, the acquiring corporation, and the subsidiary—it is known as a “triangular” merger. Triangular mergers are frequently employed for tax and legal reasons since they might offer a more effective approach to arrange the transaction.