On December 30, 2021, the Executive Yuan of Taiwan (ROC) passed the draft amendment to the “Business Mergers and Acquisitions Act” (hereinafter called “the Act”); it was subsequently approved by the Legislative Yuan in the third read on May 25, 2022. The Act is reiterated as follows, which are explained separately below:
- Increase the transparency of M&A’s information;
- Add the appraisal right of dissenters who vote against it;
- Relaxation of Whale‑minnow merger;
- Clarify the items of intangible assets;
- Granting individual shareholders of startups, a deferral of dividend income tax.
(1) Increase the transparency of M&A’s information;
When carrying out mergers and acquisitions of companies, the current Act, Article 5, Paragraph 3 stipulates that when the directors of the company have their interests in the M&A’s transactions, they shall explain to the board of directors and the shareholders’ meeting agrees with the important content that based on their interests and the reasons for or against the M&A’s resolution. The draft amendment is amended to state that the company shall disclose the statement of directors’ interests in the notice of the shareholders’ meeting, and the content may be posted on the website designated by the securities authority or the company.
(2) Add the appraisal right of dissenters who vote against it
Given the current Act, Article 1 reads that only shareholders who abstain from voting rights may request the company to buy back shares before or during the shareholders’ meeting. However, the draft amendment draws on the interpretation of the Judicial Yuan’s Interpretation No. 770 and further expands
the scope of the appraisal right of dissenters. Even if they vote against the M&A’s proposal at the shareholders’ meeting, they can request the company to buy back all the shares.
(3) Relaxation of Whale‑minnow merger
To increase the flexibility and efficiency of M&A, the draft amendment’s Articles 18, 29 and 36 of the Act will change to relax the scope of the Whale‑minnow merger (so-called “big whale eats small shrimp”). The current act adopts parallel provisions for “share swap” and “corporate division”, that is, the issuance of new shares must not exceed 20% of the total shares of the acquiring company, and the payment of cash or property value also does not exceeds 2% of the acquiring company’s net value. However, the draft amendment adopts the “either one” approach, and the relevant provisions are amended to “pay no more than 20% of the net value of shares, cash or property”. The draft amendment increases the percentage of net worth. The reason is that at the beginning of the legislation of the Act, it was based on the simplified merger and acquisition procedures in Article 413-3 of the old Japanese Commercial Act. However, Japan has revised it into the Companies Act (会社法) in 2005, so refer to the relevant text of the amendments to the new Japanese law.
(4) Clarification of intangible asset items
Given the company’s goal of strengthening its competitiveness and expanding the market, lawmakers often use M&A as an important means. Therefore, when the company conducts M&A, its acquisition cost is greater than the acquisition premium of the fair value of the acquired net assets, and the identifiable intangible assets must be recognized according to the financial accounting rule (eg, IFRS and IAS, etc. ), and the balance should be recognized as goodwill. The draft amendment adds Article 40-1 related to the amortization of intangible assets and specifies the types of identifiable intangible assets, including business rights, copyrights, trademark rights, patent rights, integrated circuit layout rights, plant variety rights, fishery rights, mining rights , water rights, trade secrets, computer software, and various franchises. Secondly, relax the calculation standard of the amortization of intangible assets acquired through M&A according to the statutory period of enjoyment or 10 years, making it easier for the acquirer to estimate its tax cost.
(5) Granting individual shareholders of startups, a deferral of dividend income tax
To encourage the acquisition incentives of individual shareholders of Startups, the draft amendment adds Article 44-1 so that the dividend income of individual shareholders of Startups can be deferred until the 3rd year after the acquisition of the next year, and the tax will be paid on average in 3 years. However, the recognition of the above-mentioned startups needs to be based on companies that have not been registered for more than 5 years and have not issued shares publicly.
In addition, the definition of “transfer” in paragraph 3 of the same article refers to a sale, a gift, distribution as an inheritance, a capital reduction and cancellation of shares, a company liquidation, or a change in ownership of shares due to other reasons. The taxable year in which the shares are transferred as a result of consideration for a merger or division.
Paragraph 5 of the same article clarifies the definitions of “resolution merger date(決議合併日)” and “split date(分割日)”, which are based on the company’s “registration date(註冊登記日)” to the first resolution of the shareholders’ meeting on the “merger date(合併日)” or “split date”. If the company is by Article 19 “Simple Merger(簡易合併)” or Article 37 “Simple Split(簡易分割)” of the Act, the “date of the first resolution of the board of directors(董事會首次決議通過日)” shall be used as the judgment criterion.
Finally, paragraph 7 of the same article stipulates the “application procedures”, “documents to be presented” and “when the acquiring company is a foreign company”, the details of taxation implementation of the “deferred payment regulations” shall be formulated by the Ministry of Finance separately to standardize.