Deemed Dividend

Definition:

If a non-US subsidiary of a US company is providing security, share pledges, or a guarantee for its US parent’s borrowings, the US parent company may be deemed to have received a dividend from the non-US subsidiary, which may trigger US tax liabilities. There are certain exceptions, and regulations finalized in 2019 generally broadened the ability of non-US subsidiaries to provide credit support to their U.S. parent companies without adverse US tax consequences, but care must still be taken when structuring such borrowings to ensure that a US tax liability is not triggered as a result of a deemed dividend.

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