x is a publicly held corporation with a subsidiary, S, of which X always has owned...

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.

Solutions

Expert Solution

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.

ekkarill92 answered 8 months ago

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