Amendments Passed for Legislation, Financial Institutions Merger Act.　Multiple Tax Incentives Encouraging Mergers.

In order to encourage mergers for financial institutions, the Legislative Yuan has passed amendments to the Financial Institutions Merger Act (hereinafter “the Amendments”) on 30 March.  Under the Amendments, after the completion of merger, shareholders of Financial Institution B (the target company) can choose either to hold Financial Institution A’s (the purchasing company) stocks with equivalent value as to those of original holdings of Financial Institution B or to hold equivalent cash in return.  In short, the target company is not required to hold the purchasing company’s shares after the completion of the merger.

The Amendments also include financial holding companies as applicable object. According to the Amendments, financial holding companies can also apply the multiple tax incentives.  In order to prevent corruption, the Amendments require financial holding companies with more than 10% state shareholdings participating in merger cases involving the transferring of management has to submit a report to the Legislative Yuan before report the same to the shareholders’ meeting.  Currently, there are fifteen financial institutions with over 10% of state shareholdings.

Acting in accordance with the international accounting standards, the Amendments repeal the regulation for losses incurred from sale of non-performing loan (NPL) to be carried forward for five years.  Tax incentives such as increasing the amortization of goodwill from five (5) to fifteen (15) years and the deferring of paying land value increment tax is not limited to land designated for business use are both included in the tax incentives applicable to merger cases for financial holding companies.

In addition, as adopted by the Business Mergers and Acquisitions Act, relaxing restrictions on consideration payable pertaining to dissolved company’s shares by including not only shares of surviving or newly incorporated organization but also other organization’s shares, cash, or other assets.  Such relaxation of restrictions will make merger cases more flexible and help to accelerate the merging process.

Key Points on the Amendments
Item	Main Content
Increasing tax incentives for merger cases	Increasing the amortization of goodwill from five to fifteen years
	Deferring of paying land value increment tax is not limited to land designated for business use
	Transferring of securities exempt from securities transaction tax
Applicable Objects	Including Financial Holding Company
Merger of state-owned financial institutions	State shareholdings over 10% and involves transferring of ownership needs to submit report to Legislative Yuan before occurrence of merger
Exchanging consideration for the value of the dissolved financial institution’s shareholdings	Including not only new shares after the merger but also other organization’s shareholdings, cash or other assets to the list
Losses recognized for selling of NPL	Repeals the regulation that losses can be carried forward for five years
Rights of employees	As adopted by the Business Mergers and Acquisitions Act, new provision will be added for making the pension and severance pay to the separated employees
Evaluation	Share exchange ratio and others can be evaluated by not only accountants but also specialists
Credit granting authorities after mergers	Initially bank is the only credit granting authority, now both insurance industry and bills finance industry can also grant credit
Source: Legislative Yuan

(2009.03)
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