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.[13] 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.[14] 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.

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