The Ministry of Finance rendered the Tai-Tsai-Shui-10600029170 Directive of July 28, 2017 (hereinafter, the “Directive”) to communicate relevant requirements concerning the application of tax incentives under Article 39, Paragraph 1 of the Enterprise Mergers and Acquisitions Law as well as controlled matters under Paragraph 2 of the same article to the division of a company pursuant to the same law.
At the outset, the Directive pointed out that beginning with January 8, 2016, when a company engages in corporate division pursuant to the Enterprise Mergers and Acquisitions Law with voting shares used as a consideration for the shareholders of the divided company and accounting for at least 65% of the entire consideration, the tax incentives under Article 39, Paragraph 1 of the same law shall apply. If Subparagraph 5 of the same paragraph and article applies to the recording and reservation of land incremental taxes for a divided company, Paragraph 2 of the same article shall also apply where if the shareholders who obtain the share consideration on the record date of the division assign the shares obtained as a result of such consideration to the extent that the combined shares as held are lower than 65% of the original consideration so received within three years upon completion of the transfer registration of the land, the divided company shall supplement the land incremental tax so recorded and reserved. If the tax which should be supplemented is not paid up, the surviving or newly established company after the division shall be responsible for payment.
This Directive further pointed out that a company which engages in corporate division or any acquisition (but not including the circumstance under the Tai-Tsai-Shui-094045703870 Circular of October 11, 2005 from the Ministry of Finance where the acquired property is land) or merger under Article 39, Paragraph 1 of the same law shall perform calculations based on the “entire consideration” for the merger or acquisition determined pursuant to the Commercial Accounting Law, the Commercial Accounting Standards, the Enterprise Accounting Standards Gazette, as well as the International Financial Reporting Standards, the International Accounting Standards, interpretations and interpretation announcements recognized by the Financial Supervisory Commission to determine if the consideration of voting shares for payment to the acquired company reaches at least 65%. However, if a company engages in an improper form of merger or acquisition to evade or reduce tax obligations, the tax authorities should ascertain the facts and determine the entire consideration under the principle of substantive taxation.