To make merger of financial institutions more attractive by simplifying the merger procedure and providing more tax incentives, the Financial Institutions Merger Act (FIMA) was first amended on 9 December 2015. The main points are as follows:
1. Article 2: stipulate application principle of relevant laws
To specify the application principle of the FIMA, the Business Mergers and Acquisitions Act and the Company Act, the amendments stipulate that merger of non-corporation financial institutions shall be effected in accordance with the FIMA. In addition, the provisions regarding merger of companies limited by shares under the Business Mergers and Acquisitions Act shall apply mutatis mutandis.
2. Article 4: stipulate eligible applicants
- Add financial holding companies:
The eligible businesses for investment by financial holding companies were limited to finance-related businesses. Since the businesses of financial holding companies are closely related to financial business, amendment is made to include merger of financial holding companies.
- Amend the scope of banking enterprises:
The credit departments of agriculture associations and fishery associations are excluded from the application of the FIMA because the applicable laws and competent authority are different versus general financial institutions. In addition, Chunghwa Post Co., Ltd. is also excluded from the application of the FIMA because there is no need to stipulate a specific corporation under the FIMA. Moreover, to meet business needs, "other institutions approved by the competent authority" are now included within the scope of banking enterprises.
- Amend the scope of insurance enterprises:
To meet business needs, "other institutions approved by the competent authority" are included within the scope of insurance enterprises.
3. Article 13: provide tax incentives
To encourage merger of financial institutions and to be in line with the provisions under relevant laws and regulations, the tax-related provisions are amended as follows:
- Exemption and deferral of taxes and amortization of goodwill:
It is reasonable to exempt the taxes incurred by the transfer of properties or shares for merger because such transfer is merely a formality. Therefore, the amendments stipulate that the securities transaction tax incurred by the transfer of securities for merger shall be exempted and the transfer of commodities or services for merger is not within the scope of business tax. Moreover, the amendments expand the scope of deferred land value increment tax, and therefore the land value increment tax generated due to the transfer of the land owned by the extinguished institution for merger shall be deferred. Further, the period of amortization of the goodwill generated due to merger is extended to 15 years.
- Refer to the Income Tax Act, the period of deducting the loss is extended to 10 years.
- Succession of tax incentives:
The amendments stipulate that the surviving institution or newly incorporated institution may acquire the tax incentives for the properties or commodities for merger which are not expired or deducted in accordance with relevant laws.
4. Article 8: diversification of merger consideration
For the purpose of arranging more flexible and diversified considerations when carrying out merger, the amendments stipulate that the surviving institution or newly incorporated institution may pay with new shares to be issued by such institution or other institutions, in cash or other properties as the consideration to the shareholders of the extinguished institution. In short, the consideration is not limited to the new shares.
5. Article 9: handling dissenting creditors
The amendments stipulate that the financial institution shall handle the creditor's objection to the merger by satisfying such creditors, furnishing an appropriate security, creating any trust exclusively for creditors' satisfaction, or certifying that such merger is without prejudice to the rights of creditors, otherwise such financial institution shall not assert the merger as a defense against such creditors.
6. Article 11: specific stipulations for non-performing loans
The provisions regarding non-performing loans are substantially amended and the main points are as follows:
- The assignee of non-performing loans is not limited to asset management companies.
- The notification of transferring non-performing loans shall be conducted in accordance with the Civil Code:
Because the sale of non-performing loans is rare and exceptional and for the purpose of protecting the rights of debtors, after the amendments take effect, the notification of transferring non-performing loans shall be conducted in accordance with Article 297 of the Civil Code. The transfer of non-performing loans will not be effective as against the debtor until the debtor has been notified of it.
- To avoid contradicting the bankruptcy and reorganization system and for the fair settlement of claims, after the amendments take effect, the general bankruptcy and reorganization process shall be applicable to the debtors of non-performing loans.
- Both the financial institutions and the assignee of the non-performing loans may mandate an impartial third party to conduct public auction.
- Amend the provisions of business tax and the loss recognition:
Based on the fair taxation principle, the amendments delete the provision that the business tax rate for the banking enterprises shall apply mutatis mutandis to asset management companies when disposing of the non-performing loans of financial institutions. Additionally, to conform to the corporate governance, the Generally Accepted Accounting Principles and the International Accounting Standards, the amendments delete the provision that the loss from sale of non-performing loans may be carried forward over 5 years.