January 2023
Aaron Chen and Eddie Shih
To promote the development of the warrant market, the Executive Yuan adopted the Partial Draft Amendments (hereinafter, the “Draft”) to the Securities Transaction Tax Act (hereinafter, the “Act”) on December 8, 2022 and submitted the same to the Legislative Yuan for deliberation. The highlight of the Draft is that a preferential tax rate of 0.1% is applicable to the adjustment of certain stocks in the dedicated hedge account by a call (put) warrant issuer.
The current securities transaction tax rate is 0.3% in principle, except for 0.15% for the transactions of buying and selling a listed or OTC-listed stock of the same kind and equal quantity through the same account on the same day (Article 2, Subparagraph 1 and Article 2-2 of the Act). In addition, under the relevant requirements of the Taiwan Stock Exchange Corporation and the Taipei Exchange, warrant issuers shall have liquidity provision mechanisms and perform their quotation responsibility, as shown in the following chart:[1]
To reduce the cost of establishing and adjusting the hedge part of a warrant issuer and to improve the quality of quotation, the Draft newly adds the provisions that during the period from the listing date to the expiration date of the call (put) warrant, pursuant to the requirements for fulfilling the quotation responsibility and for the purpose of risk management, if the subject stock recognized by the competent authority in the dedicated call (put) warrant hedge account is sold within five (5) years after the effective date of the Draft, the securities transaction tax shall be levied at the tax rate of 0.1% of the closing price of each transaction for the portion of the total closing amount of the daily transactions that falls within the necessary scope of hedge (Article 2-3 of the Draft), and a list of the transaction details of the dedicated warrant hedge account shall be prepared for submission to the tax collection authority within the required period (Article 3, Paragraph 4 of the Draft).
However, if a warrant holder buys the subject stock from the warrant issuer at the agreedexercise price, the securities transaction tax is still levied at the current rate set forth in the preceding paragraph since there is no difference from a regular stock transaction.
The government expects that the enforcement of the Draft will help to improve the warrant trading system, which can stimulate the warrant trading market and, conversely, can increase the relevant tax revenue. Therefore, it is worth keeping track of the subsequent legislative process.
[1] https://www.fsc.gov.tw/fckdowndoc?file=/%E5%B0%88%E9%A1%8C%E4%B8%8031-10(1).pdf&flag=doc
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