017 Penalty shouldered by a parent company
In case a subsidiary commits fraud, a penalty would be imposed, and its cost would be excluded from nontaxable expenses. On the other hand, if a parent company shoulders a penalty for its subsidiary, the cost would be treated as donation, which makes it included in nontaxable expenses to the extent that it does not exceed the limit. However, if the penalty is a heavy burden for the subsidiary, it is possible that the penalty that its parent company pays to lesson the burden would not be regarded as donation. As we see here, there are different cases on this matter.
When there are complicated relations between parent companies and subsidiaries (or if there exists a subsidiary of a subsidiary), we have to be careful of what case we should apply and how to treat the cost.
