Skip to content

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

Which of the following is the most likely effect of blocked remittance restrictions imposed by a subsidiary's host government on the parent's dividend policy?

The parent may use alternative routes to extract funds, such as royalties, management charges, transfer prices or interest on intra-group loans. Blocked remittances restrict dividends only, so cash can still be moved by other legal channels, subject to host country regulation and tax on those payments.

  1. AThe parent may need to use alternatives such as royalties, management charges, transfer prices or intra-group loan interest to extract fundsCorrect
  2. BThe parent should reduce its own dividend to shareholders to zero permanently
  3. CThe restrictions eliminate the need to consider withholding tax on any other payments
  4. DThe subsidiary will automatically be treated as a branch for tax purposes

Explanation

When dividends cannot be remitted freely, multinationals use other routes such as royalties, fees, transfer pricing and loan interest, subject to local rules and tax. The other options do not follow from remittance restrictions.

Did you get it right without looking?

One question tells you little. A timed set on Dividend policy in multinationals and transfer pricing shows your real accuracy, how long you take and where you lose marks.

Practise Dividend policy in multinationals and transfer pricingFree diagnostic mock

More Dividend policy in multinationals and transfer pricing questions