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ACCA Strategic Professional · Advanced Financial Management · Dividend policy in multinationals and transfer pricing

A subsidiary's host government blocks dividend remittances above 40% of annual profit. Which method would allow the parent to obtain cash from the subsidiary while still complying with this restriction?

Charging interest on an intragroup loan or fees for genuine services lets cash move to the parent without being treated as a dividend, so it may fall outside the 40% dividend cap, provided the charges are arm's length and permitted under local rules.

  1. ACharging the subsidiary interest on an intragroup loan or a fee for genuine services, if these are not covered by the restrictionCorrect
  2. BPaying a larger dividend through a different bank
  3. CDeclaring a dividend but not paying it
  4. DReducing the subsidiary's share capital without approval

Explanation

Interest, royalties and service fees are payments for loans, intangibles or services and often fall outside dividend limits, if genuine and arm's length. The other options either breach controls or do not move cash.

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