Saturday, June 17, 2017

Ind AS 110: Dividend distribution tax paid by subsidiary is charged to consolidated profit or loss


A wholly- owned subsidiary company, say B Ltd., paid dividend of Rs. 250,000 to its holding company, say A Ltd. Consequently, it paid Dividend Distribution Tax (DDT) of Rs. 25,000. Both companies have adopted Ind AS from April 1, 2017 and the payment ofdividend and DDT was made after the transition to Ind AS. 

The company now has following queries:-

a. How DDT should be accounted for in the consolidated financial statements for the year 2016-17?

b. Would answer in the above case be different if A Ltd, subsequently pays dividend of Rs. 12, 00,000 to its shareholders and DDT thereon of Rs. 95,000 after deducting DDT of Rs. 25,000 paid by B Ltd.?

c. Whether A Ltd. should recognise Deferred Tax Liability (DTL) in the consolidated financial statements on the undistributed profits of B Ltd. which may be distributed in the foreseeable future?


a. At the time of consolidation, dividend income earned by A Ltd. and the corresponding entry in the equity of B Ltd. will get eliminated as consolidation adjustments. DDT of Rs. 25,000 paid by B Ltd. to the taxation authorities shall be debited and reflected in the consolidated statement of profit & loss. 

b. If holding company is allowed to adjust the DDT paid by subsidiary against its DDT liability then the sum of DDT paid by holding and DDT adjusted should be recognized in the consolidated statement of changes in equity. DDT paid by the subsidiary which has been adjusted by holding against its DDT liability, is nothing but a tax on distribution of dividend to the shareholders of holding company. Therefore, A Ltd. should recognize DDT of Rs. 120,000 to the consolidated statement of changes in equity.

c. As per paras 39 & 40 of Ind AS 12, Income Taxes, holding company should create DTL for all taxable temporary differences associated with investment in subsidiary only if it is determined that such temporary differences will be reversed in foreseeable future. Accordingly, A Ltd. is require to recognise DTL on the undistributed profit of B Ltd. ifit is already concluded that the undistributed profits will be distributed in foreseeable future. Such DTL may be reversed by the amount of DDT paid by B Ltd. when it will distribute such profits if such DDT is allowed to be set off against DDT liability of A Ltd. 

- Issue 1 of Ind AS Transition Facilitation Group Clarification Bulletin 9
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