Corporation and Subsidiary Company Essay
The international company which called Buildco Ltd establishes a new company in Australia which is a wholly owned subsidiary of Buildco. The purpose of incorporating the subsidiary is to solve the problem of sourcing debt finance in the international marketplace. However, the property development project which is undertaken by Buildco and funded by Asset Pty Ltd is financially unviable. Consequently, the Buildco expects that the Asset could write-off the loan as a bad debt and claim a tax deduction. Nonetheless, the Commissioner of Tax disallows the deduction for the bad debt because of the significant degree in the overlap in the management of both companies and the very large degree of …show more content…
In summary, there is an agency relationship between the parent company (Buildco Ltd) and the subsidiaries company (Asset Pty Ltd). That is to say, they can be treated as a single legal entity, so the subsidiary company (Asset Pty Ltd) would not write-off the loan to the parent company (Buildco Ltd) as a debt and could not claim a tax deduction for that debt. Instead, there is a similar case which is called Commissioner of Taxation v BHP Billiton Finance Ltd (2010), the court held that the bad debt can be deducted due to the fact that the Commissioner’s submissions denying the separate legal existence of Finance Ltd. However, there are two differences between the two cases. Firstly, in the Commissioner of Taxation case, the reason of building the subsidiary company is not only solves the problem of sourcing debt finance, but also deals with the third parties. In contrast, the subsidiary company (Asset Pty Ltd) has no deal with other companies, except the parent company (Buildco Ltd). In addition, in the case of Commission, the BHP Billiton Finance Ltd makes use of the loan in both operational activity and new project, but the Asset Pty Ltd is only fund to the project of parent company. So these two case cannot be seen as the same.
Corporate veil and veil-piercing