Dividends, withholding taxes and change in tax status

When the tax rate depends on the distribution of profits, tax is measured at the rate for undistributed profits; the tax consequences of a dividend are recognised when the dividend liability is recognised, in profit or loss, OCI or equity depending on the origin of the profits distributed. The withholding tax the entity pays to the authority on behalf of its shareholders is part of the dividend, in equity. Finally, a change in tax status (an initial public offering, for example) remeasures tax: the effect goes to profit or loss, except for items previously outside profit or loss (SIC-25).

In this lesson

1. 2Understand
2. 3The IFRS rule
3. 4Why?
4. 5How to apply it
5. 6Numerical example
6. 7Journal entry
7. 8Key points
8. 9Exercises