Choose Favorable Organization Form Of Enterprise Management In Tax Planning

Subsidiaries and branches are important forms of modern enterprise management.

Why does a company arrange its subsidiary units as subsidiaries, and other subsidiary units as branches?

This is probably the most important analysis from the perspective of tax planning, because in the increasingly fierce market competition, all legal measures that are conducive to improving the economic efficiency of enterprises are the key points for enterprises to consider. Choosing the form of organization conducive to tax preferences is one of the important ways to achieve this goal.

There are many different provisions on the tax treatment of subsidiaries and subsidiaries in the countries of the world, including China. This provides a choice for the establishment of subsidiary enterprises by enterprises or multinational corporations.

Generally speaking, the establishment of a subsidiary has the following advantages: 1., in the host country, it also has only limited debt liability (sometimes the guarantee of the parent company); the 2. subsidiary company reports to the parent company that the business results are confined to the production and operation activities, while the branch reports the overall situation to the parent company; the 3. subsidiary company is an independent legal entity, and its income tax collection is carried out independently.

A subsidiary can enjoy preferential tax treatment provided by the host country to its residents, including the tax exemption period. As a branch of the company, it is a part of the enterprise, and most of the host countries do not want to offer more preferential treatment. When the 4. host country uses the tax rate lower than the country of residence, the accumulated profits of the subsidiary can get the advantage of deferred tax payment; the profit of the 5. subsidiary company repatriates to the parent company is much more flexible than that of the parent company, which means that the investment income and capital gains of the parent company can be retained in the subsidiary company, or the tax return can be refunded when the tax burden is lighter.

6. many countries have reduced or exempted the dividend from their subsidiaries to their parent companies.

The benefits of setting up a branch company generally include: 1. companies are generally easy to operate, and the requirements of the financial accounting system are relatively simple; the 2. companies may bear more cost than their subsidiaries; the 3 company is not an independent legal entity; the turnover tax is paid locally, and the profits are consolidated by the head office.

In the initial stage of operation, branches often lose money, but their losses can offset the profits of the head office and lighten the tax burden; the profits from the 4. branches delivered to the head office usually do not have to be withheld; the pfer of capital between the 5. branches and the head office does not need to bear taxes because it does not involve changes in ownership.

As we can see above, there is a big difference between the tax benefits of subsidiaries and branches. Companies should carefully compare, co-ordinate and correctly plan their organizational choices.

But generally speaking, the most important difference between the two organizational forms is that the company is an independent legal entity, which is regarded as a resident taxpayer in the established country and usually has the same tax liability as other companies in the country.

The company is not an independent legal entity. It is regarded as a non resident taxpayer in the country where the branch is located, with only limited tax liability.

The profit and loss of a branch should be consolidated with the head office, that is, the consolidated statement.

China's tax law also stipulates that there are two forms of income from the subordinate branches of the company: one is to declare and pay taxes independently; the other is to merge to the head office to collect taxes.

The form of tax payment depends on the nature of the branches of the company whether it is an independent taxpayer of enterprise income tax.

We must point out that the merger of foreign subsidiaries and head companies affects the tax burden of the country of residence. As for the host country where the branch is located, it is often necessary to levy taxes on the income attributable to the branch itself, which is the so-called "income source tax" jurisdiction.

And there is no such problem in the establishment of domestic branches, so enterprises should pay attention to tax planning.

What kind of organization form should be adopted when the company set up its subordinate branches, which can get more tax benefits?

In the initial stage of the operation, the subsidiary enterprises may suffer losses and set up branches. After reducing the profits of the company with the consolidated statements of the head office, they can reduce taxable income and pay less income tax.

The establishment of a subsidiary will not achieve this benefit.

However, if subordinates can make profits in a short period of time, or if they can quickly turn a profit into a deficit, it will be more appropriate to set up a subsidiary company. They can get the convenience of operating as an independent legal person and enjoy the benefits of deferred tax payment for undistributed profits.

In addition to the careful selection of subordinate enterprises' organization form at the beginning of the operation, in the course of business operation and pportation, with the development of the whole group or subordinate enterprises, the profit and loss situation of the whole group is changing. The company still needs to adjust its subordinate branches through the pfer and merger of assets so as to get more tax benefits.

For example, when a company has lost its branches in the initial stage of operation, the loss of the branch company can be calculated by merging with the head office, so the company headquarters chose the organizational form of establishing a branch at the beginning.

After several years of operation, the branch turned into a profit. In order to enjoy the advantages of tax deferral, it decided to gradually pfer the production and business operations of the branch to another subsidiary company, or simply merge the branch into the subsidiary company. If the entire branch was pferred to the subsidiary company, then we must consider: whether or not to pay the property pfer tax, and whether there is any provision for tax preferences?

To weigh the advantages and disadvantages of subsidiaries, especially the comparison of the total tax burden, assuming that the pfer of property rights is not of much benefit, and the production scale of subsidiaries needs to be expanded, and whether the ownership of the branch assets can be pferred or not is pferred to the subsidiary companies only. The inventory can also be commissioned by the consignment, so that no tax can be paid before the trustee fails to sell.

Assuming that the loss of a branch company can be offset to the profits of the head office, it is not suitable for the branch to be pferred to the company if the branch fails to turn the profit into profit.

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