What is Subsidiary?
A subsidiary is a company controlled or owned by another company (the parent or holding company), either wholly or partially, maintaining its own legal identity and operations.
Wholly Owned vs. Partially Owned Subsidiaries
The degree of parent ownership in a subsidiary has significant implications for consolidation, governance, and liability. Wholly owned subsidiaries (100% owned) are fully consolidated in the parent’s financial statements and the parent bears all risk and reward. Partially owned subsidiaries where the parent controls more than 50% are consolidated but minority interests are shown separately. Minority-owned investments (under 50%) may be accounted for using the equity method or cost method depending on the level of influence. Each structure has different implications for tax, accounting, and risk allocation.
Tax Considerations
Subsidiary structures have significant tax implications. Wholly-owned domestic subsidiaries can typically file consolidated tax returns with their parent (subject to local rules), allowing offset of losses against profits across the group. International subsidiaries trigger transfer-pricing obligations on intercompany transactions and may create foreign tax exposure depending on activity levels and permanent-establishment risk. Turkish parent companies with foreign subsidiaries may be subject to the CFC (Controlled Foreign Corporation) rules of KVK Article 7, and groups with consolidated revenue of EUR 750 million or more must file country-by-country reports (BEPS Action 13).
Operational Independence
Maintaining a subsidiary’s separateness, not just on paper but in operational practice: is essential for liability protection. This requires separate board meetings and minutes, separate bank accounts and financial records, arm’s-length intercompany contracts, and clear delineation of when employees act on behalf of which entity. Failure to respect formalities is the most common basis for veil-piercing claims, where courts disregard the corporate separation and hold the parent liable for the subsidiary’s obligations.