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The dividend decision

Dividend policy in multinationals

Multinational companies have more than one dividend policy to
consider:

 Dividends to external shareholders.

 Dividends between group companies, facilitating the movement of
profits and funds within the group.

5.1 Remittance blocking

Once a foreign direct investment has taken place, the government of the host country
sometimes imposes a restriction on the amount of profit that can be returned to the
parent company. This is known as a ‘block on the remittance of dividends’.

Blocked remittances may be avoided by methods such as:

 Increasing transfer prices paid by the foreign subsidiary to the parent company.

 Lending the equivalent of the dividend to the parent company.

 Making payments to the parent company in the form of royalties or
management charges.

 Charging the subsidiary company additional head office overheads.

However, there are often legal and/or ethical reasons why companies
cannot use these alternative methods.

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