ACCA Strategic Professional · Advanced Financial Management · Dividend policy in multinationals and transfer pricing
A multinational parent has subsidiaries in several countries. Which of the following is the most likely reason the parent would set its dividend policy at group level so that subsidiaries remit funds on a planned basis rather than paying whatever each subsidiary wishes?
Group-level dividend planning lets the parent minimise worldwide tax, manage currency and political risk, and ensure cash arrives where needed to pay shareholders and fund investment. Identical payout ratios or local-currency payment are not objectives.
- ATo make sure the group can reduce overall tax and currency exposure and match cash to the parent's investment and shareholder needsCorrect
- BTo make every subsidiary's dividend payout ratio identical regardless of local tax
- CTo avoid ever using retained earnings in the subsidiaries
- DTo ensure that dividends are always paid in the subsidiary's local currency
Explanation
A multinational coordinates remittances to minimise global tax, manage exchange and political risk, and ensure the parent has cash for its own dividends and investments. Identical payout ratios ignore local tax and investment needs, so they are not a goal.
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