TAIWAN Law and Practice Contributed by: Ken-Ying Tseng, Vivian Cheng, Julia Kuei-Fang Yung and Gail Chang, Lee and Li Attorneys-at-Law
provide in its Articles of Incorporation for the alloca - tion of a fixed percentage of its annual net income toward salary adjustments or bonus distributions for junior-level employees; provided, however, that no such allocation should be allowed only when and until any accumulated deficits have been fully made up. Strengthened Protection of Shareholders’ Rights and Interests In order to strengthen the protection of sharehold - ers’ rights and interests and to ensure the informa - tion transparency of M&A transactions, Article 5 of the Amended M&A Act stipulates that, where a director has a conflict of interest in a proposed M&A transac - tion, the company must disclose the material informa - tion on the conflict and the rationale for approving or opposing such transaction in the notice for the share - holders’ meeting convened therefor. Expanded Scope of Whale-Minnow M&A Before the amendments to the M&A Act came into force, shareholder approval was waived where a whale-minnow M&A meets the following criteria: • the new shares issued by the acquiring company for the purpose of the merger do not exceed 20% of the total number of its outstanding voting shares; and • the total value of the shares, cash and other prop - erties paid by the acquiring company for the M&A do not exceed 2% of the net value of the acquiring company. However, in order to increase the flexibility and effi - ciency of M&A transactions, the Amended M&A Act expands the scope of such waiver by increasing the limit on the total value of the shares, cash and other properties paid by the acquiring company for the M&A to 20%. To implement a whale-minnow M&A, a com - pany only needs the approval of its board of directors and not that of the shareholders’ meeting. Increased Flexibility of the Relevant Tax Arrangements The newly added Article 40-1 under the Amended M&A Act stipulates that the types of assets that may be recognised as intangible assets in an M&A trans - action include business rights, copyrights, trade mark
rights, patent rights, integrated circuit layout rights, plant variety rights, fishing rights, mineral rights, water rights, trade secrets, computer software and various concessions. Also, under the Amended M&A Act, the period of amortisation for intangible assets acquired through an M&A is extended to the remaining period of the legal entitlement thereof or ten years, which rectifies the current conundrum that some M&A costs cannot be deducted from taxable income. Furthermore, Article 44-1 of the Amended M&A Act provides that, upon a corporation’s dissolution due to a merger or spin-off, for individual shareholders who acquire the shares of the surviving company, the newly incorporated company or the foreign corpora - tion as a result of a merger or spin-off, the tax assess - ment of the dividend income under the Income Tax Act may be deferred until the third year following the year of acquisition and taxed in equal instalments over three years with an aim to promote a friendly regula - tory environment for start-up M&As. 3.2 Significant Changes to Takeover Law There have not been any significant changes to takeo - ver law in the past 12 months. An application for constitutional interpretation has been made with the Constitutional Court to challenge and argue that the current provision regarding manda - tory offer under the TO Regulations, which provides that a mandatory tender offer bid is required for an acquisition of 20% or more of the issued shares of a public company “within 50 days” is too vague and unconstitutional, as the violation thereof includes criminal penalties. One of the major issues is that it is unclear how the 50-day period is calculated. The Constitutional Court ruled on 28 April 2023 that such challenged provisions are constitutional. As such, no amendment will be required. 4. Stakebuilding 4.1 Principal Stakebuilding Strategies While some bidders may try to build a stake in a target company prior to an offer, it is uncommon and gener - ally discouraged because of the restriction under the TO Regulations described in 3.2 Significant Changes
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