Question

A subsidiary can pay only 50% of its profits to its parent company unless the subsidiary's accumulated retained earnings have been built up to at least 50% of the book value of capital stock. Group of answer choices

Answer 1

Answer:

False

Explanation:

There is no restriction that prohibits the payment of dividends from a subsidiary to a parent company. The parent company has to report the subsidiary's profit as taxable income, so the subsidiary must pay its dividends to the parent company. To avoid multiple layers of taxation, parent companies can use the dividends-received deduction to reduce their taxes on the dividends received. Then the parent company must itself distribute dividends to its shareholders.