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Chapter Law Content

CHAPTER III TAX PAYABLE TO GOVERNMENT
Article 39
In carrying on a division or the acquisition of assets or shares by a company pursuant to Articles 27 through 30 of this Act, with the shares entitled with voting rights as the consideration to pay the company so merged/consolidated and acquired while such shares are at a value not less than sixty-five percent of the total consideration, or where a company is carrying on the merger/consolidation, the following shall apply:
1. Any and all deeds and certificates so created are exempted from stamp tax;
2. The title-ship of acquired immovable property is exempted from deed tax;
3. Transferred securities are exempted from securities exchange tax;
4. Any commodities or labor service transferred is deemed as not falling within the scope of imposition of business tax;
5. The transfer registration of the title-ship shall be immediately completed after the current value of any land owned by the company with the transfer declared is confirmed. The land value increment tax duly born by the existing land title holder may be registered under the name of the company acquiring the land after the merger/consolidation and acquisition; in case of any further transfer of that land, the land value increment tax registered shall be paid on a priority basis over any and all liabilities and mortgage from the proceedings of the disposition of such land.
After the land value increment tax under Item 5 of the preceding paragraph is registered, when shares as the consideration are transferred by the acquired company or divided company such that the shares it holds becomes lower than sixty-five percent of the consideration within three years upon completing the registration of the land transferred, the acquired company or the divided company shall make later payment of the land value increment tax registered; any shortage of the later payment shall be made good by the acquiring company and the surviving company or the newly incorporated company after the division.
Article 40
The good will created as a result of the merger/consolidation and acquisition by a company may be equally amortized within fifteen years.
Article 41
The expenses incurred from the merger/consolidation and acquisition by a company may be equally amortized within ten years.
Article 42
In case of a merger/consolidation, division or acquisition provided in Articles 27 and 28 of this Act by a company, the surviving company or the newly incorporated company after the merger/consolidation, the surviving company or the newly incorporated company after the division or the company of acquisition may respectively continue to assume any tax incentives entitled to the dissolved company, the company divided or the company acquired that is not yet deducted or not expired for the assets or business already acquired before that current acquisition; provided, however, that any company qualified for the incentive of exemption of business income tax shall continue to produce the product or labor service enjoying the incentives by the dissolved company, the company divided or the acquired company before the merger/consolidation and acquisition; such incentives shall be limited to the income accounted for the product independently manufactured or the labor service provided and otherwise enjoyed by the dissolved company, the company divided or the company acquired as of the surviving company or the newly incorporated company after the merger/consolidation, or the surviving company or the newly incorporated company after the division or the acquisition company. In case of being qualified for the incentives of investment offset, such shall be limited to the tax payable accounted for the part of the dissolved company, the company divided or the company acquired as of the surviving company or the newly incorporated company after the merger/consolidation, or the surviving company or the newly incorporated company after the division or the acquisition company.
If any tax incentives continued to be enjoyed by the company pursuant to the requirements set forth in the preceding paragraph is required to comply with the conditions and standards as specified in applicable laws and ordinances, the company shall meet the same incentive conditions and standards after the assumption of the tax incentives.
To facilitate readjustment of the structure of the industry, a company with surplus is encouraged to merge/consolidate and acquire any other company in loss to repay the debts due to banks transferred at the time the merger/consolidation and acquisition take place, the Executive Yuan may prescribe a procedure to exempt the business income tax for the income created from the assets or business so merged/ consolidated and acquired within a given period of time.
The preceding paragraph may be applicable, mutatis mutandis, to the merger/consolidation between two companies in loss.
The Executive Yuan shall specify the given period of time, applicable conditions and procedure for the exemption of business income tax as described in Paragraphs 3 and 4 of this Article.
Article 43
If provided with sound and complete accounting books and records, the loss and the year for the declaration of deduction as a result of the merger/consolidation by a company entitled to use the blue declaration form as referred to in Article 77 of the Income Tax Act or if provided with a CPA certified report and the income tax has been declared and paid up within the given time, the surviving company or the newly incorporated company after the merger/consolidation in declaring the final income tax of profit business may deduct from the net profit of the current year within ten years upon the year the loss takes place the losses provided under Article 39 of the Income Tax Act before the merger/consolidation for deduction to each company participating in the merger/consolidation in pro rata of the equities of the surviving company or the newly incorporated company held by each corporate shareholder due to the merger/consolidation.
In case of a merger/consolidation by a domestic company with a foreign company, the surviving company or the newly incorporated company or the subsidiary company incorporated by the foreign company within the territory of the Republic of China may deduct any loss not yet deducted before the merger/consolidation by each company participating in the merger/consolidation or by the subsidiary company incorporated by the foreign company within the territory of the Republic of China.
Upon the division of the company, the surviving company or the newly incorporated company may, as specified in Paragraph 1 of this Article, deduct from the net profit of the loss pending deduction before the division by each company participating in the division at the amount calculated pro rata according to the division of equity. Upon calculating of the deductible loss by the surviving company, the ratio of equity of the surviving company held after the division by the shareholders of each company participating in the division shall be further accounted for the calculation.
Article 44
If the shares with voting rights acquired by a company as a result of the transfer of its entire or substantial portion of business or assets to another company is not less than eighty percent of the consideration of the entire transaction, and all the shares so acquired have been transferred to the shareholders, then any proceedings generated from the transfer of the business or assets is exempted from business income tax; any loss incurred is prevented from deduction from the income.
The substantial portion of business as described in the preceding paragraph refers to the income of the latest three years of the transferor business is at an amount not less than fifty percent of the total operation income for each respective fiscal year; the substantial portion of assets refers to the assets to be transferred with a value not less than fifty percent of the total assets at the time the transfer takes place.
If the shares with voting rights acquired by a company as a result of a division is not less than eighty percent of the consideration of the entire transaction, and all the shares so acquired have been transferred to the shareholders, any income created as a result of the division is exempted from business income tax; any loss incurred is prevented from deduction from the income.
Article 45
If as a result of carrying on the merger/consolidation, division or the acquisition as provided in Articles 27 through 30 of this Act, the shares or contributed capital of the subsidiary company held by the company reaches ninety percent or more of the total number of issued shares or subscribed capital, the company may be elected as the tax payer since the fiscal year having survived twelve months of a given taxable year during the term of such holding to declare a combined final business income tax as provided in the Income Tax Act, and declare the undistributed earnings with an additional ten percent of business income tax; any other tax related matters shall be carried out separately by the company and its subsidiary company.
Companies electing to file a combined final business income tax return according to the preceding paragraph shall bring into all qualified domestic subsidiary companies. It is not required to secure a prior admission before such combination choice is made; however, once the choice of combination is made, unless there is due cause and approved by the Competent Tax Authority two months before the end of the fiscal year, no change is permitted.
Within five years after the shift is permitted under the preceding paragraph, the company is not allowed to opt for combination filing. When the holding of shares or subscribed capital drops below the standard prescribed in Paragraph 1 of this Article, the subsidiary company shall file a separate business income tax return and since then, the subsidiary company has not been permitted to be brought into the combined business income tax return for five consecutive years.
Companies file combined business income tax return according to Paragraph 1 of this Article, the calculation of the combined business income and the tax payable, of the undistributed earnings under the combination and the additional tax, the deduction of the business loss, the application of investment encouragement deduction, the deduction of foreign tax payment, the arrangement of shareholders’ deductible tax account, the filing of temporary payment and other rules are prescribed by the Competent Tax Authority.
Article 46
If a domestic company is carrying on a merger/consolidation, division or the acquisition of assets or shares under Articles 27, 28 and 31(3) of this Act with a foreign company, Articles 39 through 45 of this Act shall apply to the domestic company and Articles 39 and 43 to that foreign company.
Article 47
Between a company and its subsidiary company, between a company or its subsidiary company and any domestic or foreign individual, profit-making business or education, culture, public interest, charities or organization, if there is one of the following situations, the tax collection authorities may seek the approval from the Competent Tax Authority to readjust such tax obligations either according to the arm’s length transaction or depending on the results of investigation in order for an accurate computation of the income tax and tax payable of the tax payer:
1. Any arrangement not made in arm’s length transaction, avoidance or reduction of tax obligation on the amortized income, expenses, expenditures and profit/loss;
2. Any improper avoidance or reduction of tax obligation for oneself or for any other person by means of the acquisition of equity, transfer of assets or any other fraudulent arrangement.
Any company or its subsidiary company when subject to a recompilation of the amount of income and the taxable amount by the tax collection authorities pursuant to the preceding paragraph hereof is prevented from filing a combined business income tax as provided in Article 45.
Article 48
Any loss from the transaction in which a company applied its business or assets in subscribing or exchange for the shares from another company and the value of such acquired shares is lower than the book value of the business or assets may be amortized within of fifteen years; provided, however, that any loss incurred, that is prevented from deduction from the income pursuant to Article 44, may not be amortized.