x is a publicly held corporation with a subsidiary, S, of which X always has own
ID: 2339476 • Letter: X
Question
x is a publicly held corporation with a subsidiary, S, of which X always has owned 100 percent of the outstanding stock. what is the total tax liability for X and S under each of the following sets of facts? in this problem, use all corporate tax rate brackets.
a) X has taxable income of $2.2 million and S has no income.
b) X has taxable income of $2 million and S has taxable income of $200,000
c) same as b) above, but S distributed $100,000 to X as a dividend.
d) same as c) above, but X has not always owned all of the stock of S, and the dividend is distributed out of earnings and profits of a taxable year of S during which S and X were not members of the same affiliated group.
e) same as c) above, but X ownes only 10 percent of the vote and value of S's stock at all times during the year.
f) same as c) above, but X and S file a consolidated return.
Explanation / Answer
Holding & subsidiary companies are two seperate legal entities and are required to maintain their own seperate set of financial books, file their own tax returns and pay income tax .
Calculation of Tax :
Assuming the companies turnover is above 50 crores the tax shall be calculated @ 30% plus 3% surcharge.
a) X's Income----22 lac*0.309 = 6.798 lac
S's Income -----0
b) X's Income -----20lac*0.309= 6.18 lac
S's Income------2 lac*0.309=0.618 lac
c) Tax calculation will be same as given in B above for both the companies. Holding comapny is exempt of paying tax on dividend received fom subsidiary company& Subsidiary Company has to pay DDT @17.65% .
d)Dividend received by holding company from its subsidiary out of pre-acquisition profits is treated as capital receipt. In balance sheet , the holding company deducts the amount of dividend received out of pre acquisition profits from balance of shares in subsidiary account.
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