A Study on Taxation of a Gain on Liquidation
Asian Tax Journal Vol. 10 No. 1 (2009), pp. 153-174
Abstract
This article evaluates and suggests ways to improve taxation of gain on liquidation under the Corporate Income Tax Law as follows;First, net operating losses should be deducted from a gain on liquidation, since income for the each taxable year is similar in nature, to a gain on liquidation as resulted in the increase of net assets. Second, if a taxpayer shows clear evidences that a merging corporation has acquired stocks of a merged corporation within 2 years prior to the merger without considering the merger, the cost of the stocks should be excluded from the consideration of the merger. Third, in calculating a gain on liquidation, if the merging corporation acquired stocks of the merged corporation within 2 years before the merger, corresponding net assets as at the acquisition of the stocks should be deducted from the cost of the stocks as a part of the consideration of the merger. Fourth, in calculating a gain on liquidation, if the merging corporation acquired stocks of the merged corporation earlier than 2 years before the merger, corresponding net assets for the acquisition of the stocks should be excluded from the sum of net assets as at the merger. Fifth, unsettled tax reconciliation items of the merged corporation should be succeeded to the merging corporation only if the requirements of special tax treatment for the merger are met. Sixth, losses on liquidation should be treated as net operating losses for each taxable year so that a loss carry back or the succession of the loss to the merging corporation could apply. Seventh, the revenue ruling that treasury stock of the liquidated corporation is not subtracted from total net assets, and not included in residual asset value in calculating a gain on liquidation.
Keywords
- gain on liquidation
- net operating losses
- merged corporation's stock acquired by merging corporation before the merger
- merger
- division
- tax reconciliation
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