How Does A Dividend From A Subsidiary Paid To A Parent Company Affect Operating Cash Flow

Which dividend should go to operating activity, and which to financing activity in cash flow statement?

The classification of dividends in the cash flow statement is dependent on whether the dividend is received or paid and which accounting standards the firm follow.Under U.S. GAAP, dividends received are classified as operating activities and dividends paid are classified as financing activities[1].Under IFRS, dividends received can be classified as operating or investing activities. Dividends paid can be classified as operating or financing activities. The choice is ultimately up to the accountant, but the classification must be consistent[2].Footnotes[1] http://rsmus.com/pdf/us_gaap_ifr...[2] http://ec.europa.eu/internal_mar...

Where does the provision for tax go into the cash flow statement?

Good question!!!“Provision for tax” is disclosed under “Cash flow from operating activities” in Cash flow statement.There are two ways to show Provision for tax in Cash flow statement:1. The first method is, if you start the Cash flow statement with “Profit before tax” then deduct the “Provision for tax/Taxes paid” from “Operating cash flow after working capital changes”.2. In the second method, if you start Cash flow statement with “Difference between closing balance and opening balance of Profit and Loss A/c” (instead of Profit before tax); then you will add “Provision for tax/Taxes paid” in that amount.After adding you will again deduct the “Provision for tax/Taxes paid” from “Operating cash flow after working capital changes”(as explained in the first method).Hope this makes sense! :)

How do holding companies make profit from their subsidiaries? Are they in contract for a profit sharing with their subsidiaries?

The mistake in this question is to try to locate profit in an abstract entity. Ultimately only people can profit. Entities exist only to organize that. So if an operating company makes a profit, its parent company makes that profit at the same time, a holding company owning multiple parent companies makes that same profit, as do the shareholders of the holding company. If a bird sitting on the head of a person riding a horse on a bridge picks up a worm, the bird, the rider, the horse and the bridge are all carrying that worm. There is no need for cash or assets or worms to flow anywhere.And this assumes all companies are wholly-owned—in real corporate set ups there can be all kinds of minority interests, revenue sharing, profit sharing and other arrangements that chop up the operating company’s profits in complicated ways. But eventually, everything traces to an individual beneficiary.Even a charitable organization eventually distributes real goods and services to real people. We may not be able to identify those people precisely, such as if the charity buys wetlands for protection, but in the end, only people matter.If you’re asking how a holding company collects cash to distribute to its shareholders—assuming it does that—then yes, it might collect some from profit sharing agreements. It could also collect some in other types of agreements or dividends. It could sell the subsidiary company for cash, or cause it to sign away some of its assets or income.

Does ebitda include dividends?

EBITDA stands for earnings before interests, taxes, depreciation and amortization.And of course, it is used to pay off dividends (from the net income) - after paying off all debtholders (interest payments etc). Because dividends are shareholders privilege.Let me illustrate you an example from a company’s filings:As you can see from above image, dividends are at the most BOTTOM- so dividends are part of EBITDA because IF EBITDA is low, or negative, they usually will not pay off dividends or would need to tap into their retained earnings or fund it via debt (this is not a good sign).

In a cash flow statement, why are loans and advances given by the company to the employee considered as operating activity, as providing loan to employees is not a normal course of business for company?

You shall better refer to AS 3 for better understanding.However for understanding of a common man, you can consider like this, that Loans & advances are on the asset side of the balance sheet. Cash is moving out of the company and in because of this activity. Loans and advances are given to employees to help them meet contingencies in lives as a company has options of borrowing funds, taking credit, but as an individual an employee is solely dependent on company / employer for his finance inflows to meet his expenses.Loans and advances do not help to raise or repay funds or capital (owned or borrowed), so they cannot be considered as financing activity.They cannot be considered as investing activities as they do not affect fixed assets or investments.(for cash flow ignore investment in quality workforce).They can be considered as a current asset as the loans and advances given to employees are usually recovered in a year or so. They result into cash outflow that has an impact on working capital of the company which is usually financed by banks and nbfc as working capital term loan.Employees are important asset without which company cannot function. Hence giving them advances is a regular bound activity without which smooth functioning of business is not possible, also for cashflow, Provision for tax and Proposed dividend are non current, rest all in CA & CL are current assets and liabilities. Hence even loans and advances is part of CA.Wc=ca-cl.Also working capital means ‘Capital required for smooth functioning of day to day business operations and activities.’.Thus L&A is a CA, thus it affects WC, thus it will be considered in +-changes in working capital which is part of cash from operating activities. Thus it will be reflected in working capital changes which is a part of cash from operating activities.Cash from operations is nothing but cash flow affecting items of P&L account.Hope this clears doubt

What are the taxes on a wholly owned subsidiary of a foreign company in India?

The wholly owned Indian subsidiary of a foreign company is liable for tax in India on its global income. If the subsidiary company in India is registered in India than the subsidiary company is tax resident in India and is liable to pay tax in India on its global income irrespective of whether it has paid tax on its profits in the home country of its parent company. If the Indian subsidiary of a foreign company is also an `associated enterprise’ within the meaning of the term in section 92A than the provisions of arm lenth pricing on its international transactions will also become applicable and it will have to maintain elaborate records as prescribed and submit a report by a Chartered Accountant as per section 92E of the Act.The supreme court has in October 2017 ruled in a case that simply because a foreign company has a subsidiary in India will not make the Indian subsidiary a `permanent establishment’ (PE) of the parent company unless the premises of the subsidiary company are at the `disposal of’ parent company. It means that simply because a foreign company has a subsidiary company in India will not make the profits of parent company liable to tax in India.