Liquidating dividend and tax effect
A domestic corporation in the Philippines would normally declare dividends in the Philippines to distribute its earnings accumulated through the unrestricted or free retained earnings.
Liquidation is a taxable event for both the shareholder and the corporation. Like the “Redemptions Not Equivalent to Dividends” test of I. A corporation will not recognize any gain or loss on a distribution of cash to its shareholders. But if the corporation distributes appreciated property, the corporation must recognize gain as if the property were sold to the shareholder at fair market value. Important Note: These two rules operate as a loss disallowance system.If the corporation distributes appreciated property, the corporation is taxed on the gain under Code § 311(b).In a corporate set-up, dividend in the Philippines represents the share of the owners of the corporation – the stockholders.An effective dividend policy in the Philippines would be a coordination of corporate earnings and cash position.