6.5 Intra-Entity Dividends

When a foreign subsidiary declares a dividend to its parent company and there is a significant time lag between the record date and the payment date, the parent would recognize transaction gains or losses related to the dividend receivable in earnings as it would for other transaction gains or losses related to foreign-currency-denominated assets or liabilities.4 If the U.S. parent’s functional currency is the USD, a receivable denominated in a currency other than the dollar is a foreign currency transaction.

Similarly, a foreign subsidiary’s declaration of a dividend, which is not paid on the date of declaration, results in a payable. If the payable is not denominated in the subsidiary’s functional currency, the subsidiary is at risk for fluctuations in the foreign currency exchange rate between the declaration date and the date the exchange rate is fixed for the purpose of paying the dividend.

See Section 4.6.2 for additional guidance on the foreign exchange effects of declared dividends that are denominated in a foreign currency.