In order to encourage top executives and technology investors to participate in the operation of Biotech and Pharmaceutical Companies and R&D activities, and to share their achievements, the new shares issued by a Biotech and Pharmaceutical Company to top executives as bonus or compensation and to technology investors in return for their contribution of technology know-how may be elected to be excluded from their taxable income for the year in which such shares are acquired. Once an election is made, it cannot be changed. However, if a top executive or technology investor has elected to exclude such new shares from his/her/its taxable income for the year in which such shares are acquired, when the shares are transferred (including a book-entry transfer to a securities depository account), the total transfer price of such shares, or the market price thereof at the time of gifting or distribution as estate or on the book-entry transfer date, shall be included in the revenue for the year of the transfer and be declared for assessment of income tax in accordance with the Income Tax Act.
Where a top executive or an individual technology investor has elected to exclude the shares from his/her annual taxable income for the year in which such shares are acquired in accordance with the preceding paragraph, and has held such shares and continued to be employed by or provide services relating to his/her technology know-how to the Biotech and Pharmaceutical Company for at least two years, if the shares are transferred (including a book-entry transfer) at a price (either the total transfer price or the market price at the time of gifting or distribution as estate or on the book-entry transfer date) higher than the market price or purchase price at which such individual acquired such shares, such original acquisition price instead shall be included as the revenue for the year of the transfer and be declared for assessment of income tax in accordance with the Income Tax Act. However, the above provisions shall not apply if the top executive or the individual technology investor has not declared the price of the shares for assessment of income tax or has declared the price for assessment of income tax but cannot provide documentary proof of the original acquisition price, and the taxation authority cannot find the original acquisition price.
The transfer described in the two preceding paragraphs refers to the purchase and sale, gifting, distribution as estate, cancellation of shares as a result of capital reduction, corporate liquidation, or change in ownership due to other causes.
The top executives referred to in Paragraph 1 hereof are those who have biotechnology and pharmaceutical-related expertise or skills and hold the position of CEO or a managerial officer, at the minimum, in a Biotech and Pharmaceutical Company; the technology investors referred to in Paragraph 1 hereof are the investors that provide a Biotech and Pharmaceutical Company with the technology know-how that it needs in return for the acquisition of its shares.
Where an individual technology investor's income is calculated in accordance with Paragraph 1 or 2 hereof but is not declared or substantiated by any documents, the sum of his/her costs and necessary expenses shall be calculated at thirty percent (30%) of his/her revenue and be deducted from his/her taxable income.
The tax benefits under Paragraphs 1 and 2 are available only if the Biotech and Pharmaceutical Company submits the required documents and information in the prescribed format to the Competent Authority for certification in the year in which its top executives or technology investors acquire the shares issued. A copy of the results of the certification shall be provided to the taxation authority at the place where the Biotech and Pharmaceutical Company is located.
In the year in which the top executives or individual technology investors to whom Paragraph 2 applies have held the shares and been employed by or provided the services relating to their technology know-how to the Biotech and Pharmaceutical Company for two (2) years, the Biotech and Pharmaceutical Company shall submit documents proving such individuals' shareholding and services mentioned above to the Competent Authority for recordation. A copy of each of the evidentiary documents shall also be submitted to the taxation authority at the place where the Biotech and Pharmaceutical Company is located.
The scope of expertise or technology in the Biotech and Pharmaceutical Industry referred to in Paragraph 4, the required format, documents, deadlines and procedures for the certification and recordation applications referred to in the preceding paragraphs, and other relevant matters shall be prescribed by the Competent Authority.
The procedure for declaring deferral of the income tax payable on the shares acquired by the top executives and technology investors under Paragraphs 1 and 2, the documents required to be submitted and other related matters shall be prescribed by the Ministry of Finance.