TAIWAN Law and Practice Contributed by: Eddie Chan, Derrick Yang, Winnie Lin and Yuan-Yuan Lo, Lee and Li Attorneys-at-Law
4.4 Liquidity Event: Certain Transaction Terms Consistent with the global transaction practice, founders are generally required to stand behind representations and warranties and certain lia- bilities for the company, while VC investors typi- cally only give representations and warranties regarding their ownership and title to shares. An escrow/holdback is customary for these pur- poses if such arrangement acts in favour of the VC or PE. While representations and warranties insurance may be sought for larger cross-border transactions, it remains less common in local inbound investment deals. There have been a few spin-offs in the technol- ogy industry in Taiwan, but they are not consid- ered common. Structuring the transaction as a spin-off may involve the segregation of a partial independently operable business of the seller as opposed to selling the entire business, or it may be done for reasons such as the consideration being directly paid to the seller’s shareholders. A spin-off can be more complex than a share deal in terms of carveout and transition procedures, particularly when the business requires special permits and involves the spinning off of manu- facturing sites. 5.2 Tax Consequences 5. Spin-Offs 5.1 Trends: Spin-Offs 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 liabili- ties to the buyer.
On the other hand, tax exemption applies; if at least 65% of the consideration paid by the buy- er 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 aforementioned corporate income tax may also be exempt. 5.3 Spin-Off Followed by a Business Combination A spin-off followed by a business combina- tion is possible in Taiwan. However, a transi- tional arrangement may need to be structured to ensure there is no business 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 complexity of the transaction. However, a typical timeframe for completing the process is six to ten months, taking into account the time- line required for the shareholders’ meeting, for- eign 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 transaction. Any person who, either individually or jointly, acquires more than 5% of the total issued shares of a public com- pany must report to the Financial Supervisory Commission (FSC), stating the purpose of the
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