| A Netherlands company owns a minority interest in a foreign joint venture in Mexico. This Joint Venture uses the equity method of accounting. It is the NL company’s dividend policy for foreign joint ventures that all retained earnings are paid out as dividends. Per this JV’s bylaws, annual net profits in the balance sheet shall allocate a certain % of net profits to a legal reserve fund until such serve fund equals 10% of the corporate capital and remaining profits shall be paid as dividends. This reserve account is fully funded and all other retained earnings can be paid as dividends. What method of recovery should be used on this legal reserve fund? It is a legal reserve and can’t be distributed as dividends. Should a deferred tax liability be accrued on this legal ? Does the MX NL treaty say any thing about this situation? The Netherlands company does not make the APB 23 assertion for any subs or joint ventures. The company has no future plans to sell or dispose of their interest in this JV. Please cite full the ASC 740 code sections that are applicable. This is very important. |
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