Question

1. Discuss the translation of foreign branch income versus foreign subsidiary income.

Answer 1

The points given below are noteworthy concerning the difference between branch and subsidiary:

1. Branch can be understood as the entity other than the parent company, wherein same business as that of the parent is carried out at a different location. On the other hand, if a company has ownership and controlling interest in another company, then the company which owns and controls, is called the holding company and the company which is so owned and controlled is known as a subsidiary company.
2. Branch has to report to its Head Office for its operations. On the other hand, the subsidiary company comes under the holding company, which holds its majority stake.
3. The Branch office may carry out the same business operations as the Head office. Conversely, the subsidiary company may or may not undertake the same business operations as the holding company.
4. While a branch has no separate legal standing, a subsidiary company is a separate legal entity and has an identity different from its holding company.
5. In case of branches, there may be the joint or separate maintenance of accounts, whereas the subsidiaries maintain their own separate accounts.
6. If we talk about investment to open a branch a subsidiary, the parent company has to make 100% investment in setting up a branch at a different place. Unlike, the parent company has to make an investment of >50 to 100% to own a subsidiary company.
7. Liability of the Branch office, extends to the parent organization, i.e. when the branch is unable to discharge liabilities, it has to be paid by Head Office. In contrast, the liabilities of a subsidiary company do not extend to the holding company.
8. If a branch continuously suffers losses, it is closed down, whereas if a subsidiary is prone to losses, it is sold out to another company.

Please find the below further points on difference between foreign branch and foreign subsidiary:

BASIS FOR COMPARISON	BRANCH	SUBSIDIARY
Meaning	Branch implies an establishment set up to by parent company, to perform the same business operations, at different location.	Subsidiary company is understood as the company whose full or partial controlling interest is held by another company.
Reports to	Head office	Holding company
Business	Branch conducts same business as parent organization.	Subsidiary may or may not conduct same business as parent organization.
Separate legal standing	No	Yes
Accounts maintenance	Either separately or jointly	Separately
Ownership interest	The parent organization has 100% ownership interest in the branch.	The parent organization has >50-100% ownership interest in the subsidiary.
Liabilities	Extends to the parent company.	Limited to the subsidiary