Consideration in spin-off
Amortisation of intangible assets
Tax exemption
In order to further liberalise the regulatory framework for M&A activities, the Ministry of Economic Affairs plans to propose certain amendments to the Mergers and Acquisitions Act. The proposed amendments cover consideration in spin-offs, amortisation of intangible assets and tax exemption.
Consideration in spin-off
Under the existing legislation, only new shares may be offered as consideration in a spin-off. Under the proposed amendments, consideration in spin-offs can also be made in the form of cash, equity or other assets, provided that the amount of consideration can be justified.
Amortisation of intangible assets
Under the act, goodwill is the only intangible asset in M&A transactions that can be amortised, whereas both the Income Tax Act and the Regulations Governing Assessment Rules for Profit-Seeking Enterprises Income Tax allow amortisation of other intangible assets. To reconcile these differences, the ministry plans to propose that the act additionally allow amortisation of the following intangible assets:
- management rights (over a period of 10 years);
- copyrights (over a period of 15 years);
- trademarks, patents and franchises (over the period for which legal protection would be given); and
- other intangible assets (over a period of 15 years).
Tax exemption
Under the existing rules, a company spinning off its business will enjoy tax exemption only if the new shares issued as consideration in the spin-off are all transferred to its shareholders. Under the proposed amendments, a company spinning off its business may enjoy tax exemption if its shareholders will receive 80% or more of the new shares offered as consideration in the spin-off. The proposed amendment further clarifies that the company may enjoy tax exemption to the extent of the consideration received by its shareholders and claim losses from the spin-off to the extent of the consideration not received by its shareholders.
The ministry has been collecting opinions on the proposed amendments from other government agencies, law professors, business associations and law firms. Although it is unclear whether or when the proposed amendments will be passed into law, they are worth noting when structuring future M&A transactions.
For further information on this topic please contact Ken-Ying Tseng or Susan Lo at Lee and Li Attorneys at Law by telephone (+886 2 2715 3300), fax (+886 2 2713 3966) or email ([email protected]).