TAIWAN Law and Practice Contributed by: Eddie Chan, Derrick Yang, Winnie Lin and Yuan-Yuan Lo, Lee and Li Attorneys-at-Law
5.2 Tax Consequences In general, the major tax implications of a spin-off are as follows: (i) a business tax (VAT) will be imposed at 5% of the consideration; and (ii) the seller will be subject to corporate income tax at a rate of 20% on any gains (ie, the difference between the transaction price and book value) arising from the transfer of its assets and liabilities to the buyer. On the other hand, tax exemption applies: if at least 65% of the consideration paid by the buyer is voting shares in the buyer’s company, the aforementioned business tax may be exempted. Additionally, if at least 80% of the consideration paid by the buyer is voting shares in the buyer’s company, and the seller transfers all the acquired shares to its shareholders, the afore- mentioned corporate income tax may also be exempt. 5.3 Spin-Off Followed by a Business Combination A spin-off followed by a business combination is pos- sible in Taiwan. However, a transitional arrangement may need to be structured to ensure there is no busi- ness disruption to the operation. 5.4 Timing and Tax Authority Ruling The timing of a spin-off can vary depending on the specific circumstances of the company and the com- plexity of the transaction. However, a typical timeframe for completing the process is six to ten months, taking into account the timeline required for the sharehold- ers’ meeting, foreign investment and other regulatory approvals, and the transfer of manufacturing sites. 6. Acquisitions of Public (Exchange- Listed) Technology Companies 6.1 Stakebuilding It is considered common for an investor to acquire a stake in a public company prior to making an offer in Taiwan to secure the votes to approve an M&A trans- action. Any person who, either individually or jointly, acquires more than 5% of the total issued shares of a public company must report to the Financial Super- visory Commission (FSC), stating the purpose of the acquisition. Any change in the shareholder’s holding of 1% or more of the total issued shares of the public
company should also be reported. Directors, super- visors, managerial officers and shareholders holding more than 10% of the total issued shares of the public company are also subject to regular reporting obliga- tions. On the other hand, there is no requirement for the buyer to make a proposal that it will not be making a proposal within a specified period of time. 6.2 Mandatory Offer A mandatory tender offer would be required if any- one, alone or in concert with others, plans to acquire 20% or more of the issued shares of a public com- pany within 50 days unless any exceptions apply. An acquisition will be deemed in concert with others if the acquirers obtain such shares by means of a con- tract, agreement, or other form of agreement for a joint purpose. 6.3 Transaction Structures Privatisation through a two-step transaction – ie, a tender offer followed by a share exchange using cash as the consideration (cash squeeze-out) – is a com- monly adopted transaction structure in Taiwan’s M&A market. Additionally, M&A transactions between Tai- wan companies and Cayman Islands companies are often structured through a reverse triangular merger, which also results in the public companies being the surviving companies and wholly owned by the acquir- er after the merger. 6.4 Consideration and Minimum Price In general, cash is more commonly used as consider- ation in public M&A transactions in Taiwan. In a tender offer, if the consideration is in cash, the offer docu- ments must include a performance guarantee from a financial institution, or a written confirmation from a qualified financial adviser or CPA must be included in the offer documents as proof of funding. If the con- sideration is in the form of shares, such shares must be domestic securities traded on the Taiwan Stock Exchange or the Taipei Exchange, or foreign securi- ties prescribed by the FSC. Typically, the tender offer price would be set higher than the market price to incentivise public shareholders to tender their shares. In public M&A transactions, an independent expert’s fairness opinion is required to validate the fairness of the transaction price. The directors of the companies involved in the transaction must fulfil their fiduciary
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