Legislation and jurisdiction

Relevant legislation and regulators

What is the relevant legislation and who enforces it?

The principal legislation concerning mergers and acquisitions, unfair competition and monopoly in Taiwan consists of:

 

Article 10 of the FTL places mergers and acquisitions in the broader category of ‘combinations of enterprises’. The 2002 amendments to the FTL and its related Enforcement Rules changed the filing process for combinations from an approval system to a notification system, and the Guidelines introduced a two-tier review system by classifying combination filings into ‘simplified’ and ‘general’ filings. The 2017 amendments to the FTL brought two further changes:

  • the waiting period was changed from number of calendar days to number of working days; and
  • the Fair Trade Commission (FTC) has been given the power to solicit opinions from the public and, if necessary, enlist academic research institutions to provide opinions; however, in the event that one of the participating parties to the combination does not agree to the combination (ie, a hostile takeover), the FTC must inform the objecting party of the justification for the combination filing and seek the opinion of the objecting party on the combination filing.

 

At the national level, the FTC is the government authority overseeing mergers and other types of combinations. The FTC is empowered to examine and investigate possible violations of the FTL and to take action against those who breach the FTL by imposing fines and other penalties. The FTC can also order the dissolution of any combinations that breach the provisions of the FTL. The FTC will investigate complaints against combinations effected without the consent of the FTC. It may also investigate matters on its own initiative.

Scope of legislation

What kinds of mergers are caught?

Transactions that fall under the broad category of ‘enterprise combinations’ under article 10 of the FTL and meet one of the jurisdictional thresholds set out below must be reported to the FTC in advance. A combination under the FTL occurs when an enterprise:

  • merges with another enterprise;
  • holds or acquires one-third or more of the total voting shares or capital stock of another enterprise;
  • accepts the transfer of or leases the whole or a major part of the business or assets of another enterprise;
  • operates jointly with another enterprise on a regular basis or is entrusted by another enterprise with the operation of its business on its behalf; or
  • directly or indirectly gains control over the business operations or the employment and dismissal of the personnel of another enterprise.

 

In calculating the shares or capital contributions to determine whether there is a combination, the shares or capital contributions held or acquired by those enterprises that have a controlling or subordinate relationship with the participating enterprise shall be aggregated with those held or acquired by the participating enterprise.

The Guidelines further categorise combinations into three different types, including horizontal (where the combining enterprises engage in horizontal competition), vertical (where the combining enterprises have an upstream-downstream relationship), and conglomerate (where the combining enterprises do not engage in horizontal competition and do not have an upstream-downstream relationship).

What types of joint ventures are caught?

The establishment of a joint venture company by two or more enterprises is considered an enterprise combination subject to the FTL, regardless of the type of joint venture.

Is there a definition of ‘control’ and are minority and other interests less than control caught?

Article 6 of the Enforcement Rules to the FTL prescribes that the following conditions constitute controlling and subordinate relationships:

  • where an enterprise holds or acquires more than half of the total number of voting shares of, or contributes more than half of the total capital of, another enterprise;
  • where an enterprise directly or indirectly controls the personnel, finances or business operations of another enterprise, and thus has controlling power over that other enterprise;
  • where an enterprise is assigned by or leases from another enterprise the whole or a major part of the business or assets of such other enterprise, or where an enterprise operates jointly with another enterprise on a regular basis or is entrusted by another enterprise to operate the latter’s business and thus where the assigned or leased enterprise has controlling power over such other enterprise; or
  • where a person or a group and their related persons hold a majority of the total number of outstanding voting shares of, or contributes more than half of the total capital of, another enterprise.

 

In addition, the following relationships between enterprises would be presumed to be controlling and subordinate relationships:

  • where at least half or more of the executive shareholders or directors of an enterprise concurrently act as executive shareholders or directors of another enterprise; or
  • where the same shareholders hold at least 50 per cent or more of the total number of outstanding voting shares of another enterprise, or contribute at least 50 per cent or more of the total capital stock of another enterprise.
Thresholds, triggers and approvals

What are the jurisdictional thresholds for notification and are there circumstances in which transactions falling below these thresholds may be investigated?

Article 11 of the FTL sets forth the following three criteria, any one of which (subject to certain exceptions) triggers a requirement to notify the FTC before completion of a combination:

  • one of the participating enterprises to the combination has a market share of at least one-quarter;
  • post-combination, the resulting enterprise will have a market share of at least one-third; or
  • the sales revenue during the previous fiscal year of any enterprise that is a party to the combination exceeds a figure set by the FTC.

 

The current sales thresholds promulgated by the FTC for parties in a combination are for total sales during the previous fiscal year in Taiwan to be at least:

  • NT$15 billion, where one party is not a financial institution (eg, bank, securities company, insurance company or financial holding company); or
  • NT$30 billion, where all parties are financial institutions; and
  • NT$2 billion, for one other party.

 

The FTC is authorised by the FTL to establish other new thresholds of sales revenue for certain industries as the need arises. On 2 December 2016, the FTC adopted a turnover threshold that further provided that a merger control filing is required if the combined global sales volume in the immediately preceding fiscal year of all parties to a combination exceeds NT$40 billion and at least two of the parties each have Taiwan sales volume for the same year of at least NT$2 billion.

According to the Guidelines, a general filing is required to be made to the FTC (under the foregoing thresholds) unless special thresholds are met, in which case, a simplified filing can be made. A simplified filing generally requires a shorter waiting period and the submission of less information in the notification, such as fewer major products, competitors and customers covered and fewer years of market and economic information covered. Articles 7 and 8 of the Guidelines provide special thresholds and exceptions relating to simplified filings.

A simplified filing is permissible where:

  • sales for the preceding fiscal year of the combining enterprises in the combination exceed the revenue threshold (article 11, paragraph i, subparagraph 3 of the FTA) and:
    • the combined market share in any market in Taiwan of the enterprises participating in a horizontal combination is less than 20 per cent; or
    • the combined market share in any market in Taiwan of the enterprises participating in a horizontal combination is less than 25 per cent, and one of these enterprises has no more than a 5 per cent market share in such markets;
  • the individual combined market share in any market in Taiwan of the enterprise participating in a vertical combination is less than 25 per cent;
  • after taking into account major competition factors, the proposed conglomerate combination would not have a substantial negative effect on competition in the relevant markets of participating enterprises; or
  • an enterprise participating in the combination directly holds not less than one-third, but less than half of the total voting shares or total capital of, and subsequently combines with, the other enterprise.

 

General filing may become applicable if the FTC determines that:

  • the combined market share of the top two enterprises in a relevant market reaches two-thirds of that market; or
  • the combined market share of the top three enterprises in a relevant market reaches 75 per cent of that market (except for where the combined market share of the enterprises participating in a combination is less than 10 per cent) and:

 

For the purpose of calculating the sales revenue thresholds noted above, the sales revenue of the participating enterprises to the combination shall be aggregated with the sales revenue of all enterprises that have control over the participating enterprise, enterprises that the participating enterprises have control over, and all enterprises that are controlled by the ultimate parent enterprises of the participating enterprises.

The FTL prescribes that an individual or a group, along with certain related parties of such individual or group, that holds more than half of the voting shares or total capital of any of the participating enterprises to the combination would be deemed an enterprise with respect to the combination under the FTL. For the purposes of calculating the shareholdings or capital contributions of the above individual or group, the shareholdings or contributions of the following related parties shall be included:

  • the individual, the individual’s spouse and the individual’s blood relatives within the second degree of kinship (related natural persons);
  • an enterprise in which the related natural persons hold more than one-half of the total number of outstanding voting shares or total capital;
  • an enterprise in which the related natural persons act as its chair, president or a director representing a majority of directors;
  • the above group and its representative, manager, or any other person with representing authority, his or her spouse, and his or her blood relatives within the second degree of kinship (related persons in the group); and
  • the above group and an enterprise in which a group or the related persons in the group hold more than one-half of the total number of outstanding voting shares or total capital.

 

It is unlikely that a transaction not reaching these thresholds would be investigated for not filing a notification for combination.

Is the filing mandatory or voluntary? If mandatory, do any exceptions exist?

Once any of the jurisdictional thresholds set out above are met, notification of the combination to the FTC is mandatory, unless the combination falls under one of the exceptions enumerated under article 12 of the FTL.

According to article 12 of the FTL, a combination is exempt from the requirement to notify where:

  • one of the enterprises or its wholly owned subsidiaries already holds 50 per cent or more of the enterprise with which it plans to combine;
  • the same parent company holds 50 per cent or more of the shares in each of the enterprises that plan to combine;
  • an enterprise plans to sell a distinct division to a newly established and wholly owned enterprise;
  • an enterprise plans to engage in a qualified stock redemption plan;
  • an enterprise plans to invest in and establish a subsidiary in which it will hold all the shares or contribute all the capital; or
  • other types of combinations promulgated by the FTC from time to time.

 

According to a ruling issued by the FTC in July 2016, notification of the combination to the FTC is not required for the following types of combinations:

  • a combination between enterprises that already have a controlling and subordinate relationship;
  • a combination between enterprises that are controlled by the same controlling company;
  • a combination where an enterprise surrenders part of or all its voting shares or capital contribution in a third company to an enterprise with which it has a controlling and subordinate relationship; or
  • a combination where an enterprise surrenders part of or all its voting shares or capital contribution in a third company to an enterprise that is also controlled by the same controlling company.

Do foreign-to-foreign mergers have to be notified and is there a local effects or nexus test?

Yes. When the thresholds are met, notification is required; however, in the process of reviewing the notification, the FTC may decide not to exercise jurisdiction pursuant to the Principles for Handling Applications of Extraterritorial Combinations (the Principles), the last amendment of which was promulgated in December 2016.

The Principles apply not only to combinations involving foreign enterprises with no subsidiaries or branch offices in Taiwan, but also to combinations involving Taiwanese enterprises and foreign enterprises, and Taiwanese enterprises and Taiwanese subsidiaries, branches or affiliated enterprises of foreign enterprises.

The Principles define an ‘extraterritorial combination’ under article 10 of the FTL as an enterprise combination involving two or more foreign enterprises that occur outside Taiwan. An extraterritorial combination must file a notification with the FTC if one of the jurisdictional thresholds are satisfied.

Once an extraterritorial combination meets jurisdictional thresholds, the Principles require the FTC to weigh certain factors based on international comity in determining whether to exercise jurisdiction. These factors include:

  • whether the result of the combination has ‘a direct, substantial, and reasonably foreseeable effect’ on the Taiwanese market;
  • the relative importance of the effects of the combination on Taiwan and foreign markets;
  • the locations and principal places of business of the combining enterprises;
  • the explicitness and foreseeability of impact on the market competition in Taiwan;
  • the degree of conflict with the law or policy of the country of the combining enterprises;
  • the possibility of administrative sanctions or compulsory execution;
  • the effect of compulsory execution on the foreign enterprise or enterprises;
  • international conventions and treaties, or provisions of international organisations;
  • whether the combining enterprises have equipment for the production of goods or provision of services, engage distributors or agents, or have other substantial sales channels, within the territory of Taiwan; and
  • other factors considered important by the FTC.

 

A commissioners’ meeting of the FTC was convened and resolved on 2 June 2021 to repeal the Principles, meaning that the Principles will likely no longer exist once a formal determination is proclaimed. The FTC will be amending relevant rules (eg, the FTC Guidelines on Handling Merger Filings) to include the review of foreign-to-foreign merger filings and to formally announce its repeal of the Principles in the future.

Are there also rules on foreign investment, special sectors or other relevant approvals?

Although Taiwan has joined the World Trade Organization and generally moved towards the liberalisation of restrictions on foreign investment, it still prohibits or restricts foreign investment in a number of industries. According to the Negative List for Investment by Overseas Chinese and Foreign Nationals issued by the Industrial Development and Investment Centre of the Ministry of Economic Affairs, foreign investors should be particularly aware of investment caps or barriers to investment in sectors such as telecommunications, public transportation, military supplies and accounting services.

According to the Enterprises Merger and Acquisition Law, foreign companies may merge with or assume all the assets and liabilities of Taiwan companies subject to the Negative List for Investment by Overseas Chinese and Foreign Nationals.

According to the Financial Institution Merger Law, foreign financial institutions may merge with or assume all the assets and liabilities of financial institutions incorporated in Taiwan. Under the Financial Holding Company Law, foreign financial holding companies may obtain controlling ownership interests (up to 100 per cent) in financial subsidiaries of financial holding companies.

Investment in Taiwan funded from mainland Chinese sources was previously strictly prohibited; however, the Taiwan Ministry of Economic Affairs promulgated new regulations on 30 June 2009, with the recent amendment in December 2020, with respect to investments from mainland China and the establishment of branch offices or agencies of mainland Chinese companies in Taiwan.

At present, a considerable number of industries (including textiles, certain kinds of infrastructure or manufacturing industries, banks, securities firms, insurance companies and certain Type II services (non-facility-based) telecommunication services) are allowed to receive investment from mainland China.

In addition, the Taiwanese currency, the New Taiwan dollar, is not freely convertible. If a combination were to involve the inward remittance of more than US$50 million or its equivalent by any company involved in the transaction, that company would be required to seek approval from Taiwan’s central bank on this and any other currency-related issues.