Auxiliary Company

An auxiliary company refers to a subsidiary or affiliated company that is established with the primary purpose of providing assistance and support to the main company in its day-to-day operations and functions. It functions as a supportive entity, on the lines of a helper or partner company, working in tandem with the main company to achieve common business objectives.

The auxiliary company acts as an extension of the main company, often performing specialized or complementary activities that contribute to the smooth functioning and growth of the main company’s operations. This could include providing essential services, manufacturing components, supplying goods, or offering technical expertise that directly supports the primary business activities of the main company.

Tax implications of auxiliary companies

A few tax implications of auxiliary companies are highlighted hereunder.
Compliance with transfer pricing regulations and having all the arm’s length documentation in place.
Scrutiny of expense deductibility for business purposes and increased scrutiny from tax authorities, including tax audits.
Prevention of profit shifting to low-tax jurisdictions.
Eligibility for tax incentives, subject to conditions.
Steer clear of transactions lacking genuine economic substance.
Utilizing auxiliary companies for tax optimization within the group.