Tax treatment of liquidating dividends
People come to Accountants Community for help and answers—we want to let them know that we're here to listen and share our knowledge.We do that with the style and format of our responses.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.More dividend distribution means more earnings for the stockholders and would attract more potential investors.Let's say that with the sale of the assets there is a Net Income of $ 30,000. Let's assume for simplicity sake that the Current E&P are 30,000 and the Accumulated E&P are $ (27,000) If I remember correctly...The bank account has a small balance so the liquidating dividend to the shareholder will be 35,000 (30,000 Net Profit 5,000 Balance in account)In this case how is the final dividend allocated? if the Liquidating Dividend is Say $ 35,000 then the first $ 30,000 are taxable Dividends and the rest is a return on capital...it has been a while since I had this situation If a liquidating distribution, see IRC Section 331 (distribution in exchange for stock).See also the following forms and instructions, if applicable, Form 966, Form 1099-DIV (Box 8 and/or 9) and Form 5452....which might or might not apply depending on your circumstance regarding the liquidation.
It is the Board of Directors who will decide on whether or not a dividend declaration in the Philippines will be made.
SEC requirements for such implementation would require technical knowledge and we suggest that you secure assistance of professionals.
Tax on dividends in the Philippines would likewise vary depending upon the tax status of the stockholder and the type of dividend in the Philippines declared by the Board of Directors. Ayala Avenue, 1200 Makati City, Metro Manila Phone : (02) 894-2608(02) 348-2193 Mobile : ( 63)922-856-2358 Email : info(@)Bureau of Internal Revenue (BIR) Securities and Exchange Commission(SEC) Philippine Economic Zone Authority(PEZA) Bases Conv. Authority (BCDA) Cagayan Economic Zone Authority (CEZA) Subic Bay Metropolitan Authority (SBMA) Board of Investments (BOI) Bureau of Customs (Bo C) Department of Finance (DOF) Department of Trade and Industry(DTI) Food and Drugs Administration Phils.
If you make the choice, the cost base and reduced cost base of the shares (or financial instruments) are reduced to nil just after the liquidator or administrator makes the declaration.
This is relevant for working out if you make a capital gain from any later capital gains tax (CGT) event happening to the shares (or financial instruments).