The Supreme Administrative Court rendered the 107-Pan-170 Decision of March 29, 2018 (hereinafter, the “Decision”), holding that the membership shares of a credit cooperative do not meet the criteria for free circulation because they cannot be transferred freely; since this is not compatible with the nature of securities transactions, the Securities and Exchange Law and the Statute for Securities Transaction Taxes certainly do not apply.
According to the facts underlying this Decision, the Plaintiff had previously filed his consolidated income tax and specified his income from the Ninth Credit Cooperative of Taipei (hereinafter, the “NCC”) as an income from securities transactions, which was re-assessed by the Defendant as a profit-oriented income, and the Defendant subsequently rendered the original disposition to demand supplemental tax payment. Dissatisfied, the Plaintiff brought an administrative action to set aside the original disposition. The original decision was rendered against the Plaintiff, who then filed this appeal.
According to this Decision, the Securities and Exchange Law and the Statute for Securities Transaction Taxes regulate securities transaction and taxation matters. Therefore, the precondition is that there should be securities transactions or sales and purchases, and securities transactions and sales and purchases are preconditioned by the free circulation of securities. Otherwise, in case of NCC’s members in this matter, for example, their admission or withdrawal requires the permission of the credit cooperative, and the membership shares cannot be freely transferred either. Since this does not meet the criteria for free circulation and is not compatible with the nature of securities transactions, the Securities and Exchange Law and the Statute for Securities Transaction Taxes certainly do not apply.
In this Decision, in was further pointed out that the NCC in this matter was going to generally assign its business, assets and liabilities to Bank of Panhsin with the NCC as the dissolved entity and Bank of Panhsin as the surviving entity. Since this was a absorptive merger between enterprises without actual equity transaction, the income at issue in this matter was certainly not a securities transaction income but rather a dividend income. The findings in the original decision that the income at issue was a dividend income, and that the original disposition was not unlawful, were not erroneous. The Plaintiff’s appeal was further rejected.