For example, assume that you own 100% of the shares of a holding corporation (i.e. parent company) and your holding corporation in turn owns 100% of another active corporation (i.e. subsidiary company). In this context, how can the parent and subsidiary companies transfer money between each other? The subsidiary can:
- Pay a tax-free dividend to the parent
- Return the capital invested in the subsidiary to the parent up to the ‘paid up capital’ amount (i.e. the amount of the initial investment) on a tax-free basis
Both the parent and subsidiary can:
- Make a loan
- Return payment of a loan already made
- Purchase an asset
