International tax & remittance — OpenTuition Forums

DBDuy Bach7y ago

Hi John, In the international project appraisal, if we have below scenario "Company A in country X has subsidiary B in Country Y. X has tax rate 30% and Y has tax rate 20%. B has made taxable profit of $100 and has to remit 80% of the net profit to A as dividend. The 2 countries have bilateral tax agreement to offset tax" Then, my question is as follow: If we have to calculate Free Cash Flow of A, do we have to calculate the additional tax of 10% based on the whole taxable profit of $100 of B or only 80% of this taxable profit? As from A perspective, it only can receive 80% of the net profit as dividend cash flow, then shouldn't we only consider only 80% of the additional tax 10% when considering A's free cash flow? Thank you

John MoffatTutor7y ago#1

Unless there were other instructions given in the question, you would assume that A was charged the extra 10% on the whole profit (because the whole profit belongs to B, regardless of how much dividend is paid). But, as always, you would state your assumption.