Determining RE for dividend declaration
Determining the availability of RE for dividend declaration
(Proposed SEC guidelines for comments)
The Securities and Exchange Commission (SEC) is soliciting comments on a proposed Memorandum Circular establishing guidelines in determining the appropriate amount of Retained Earnings (RE) available for dividend distribution.
The guidelines are intended to ensure that any distribution shall not adversely affect the rights and obligations of the stakeholders of the corporation. Among others, the surplus profits or income from which the dividends shall be declared must be a bona fide income founded upon actual earnings or profits and should therefore be adjusted for the following unrealized items:
- revaluation increment or surplus
- share in net income from investments in other companies
- unrealized foreign exchange gains
fair value adjustments
Formal requirements for dividend declaration and the reconciliation rules are also provided in the circular. When issued, these rules may also be relevant in determining the liability of a company for improperly accumulated earnings tax (IAET).
Written comments with complete name and address should be filed not later than April 15, 2008, to the Office of the General Accountant, 7th Floor, SEC Building, EDSA, Mandaluyong City.
Please find attached a copy of the draft circular.