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TAX TREATMENT OF TRANSFER OR CANCELLATION OF TREAS-URY STOCK
Josephine Peng
In an interpretation dated 4 December 2003, the Ministry of Finance announced the following:
If a TSE- or OTC-listed company purchases treasury stock in accordance with Article 28-2 of the Securities and Exchange Act, and sub-sequently transfers or cancels such treasury stock, the transfer or cancellation is a securi-ties transaction. Any premium generated from the transaction will be treated as premium on shares issued above their par value under Ar-ticle 241 of the Companies Act, and as such is exempted from income tax under Article 19 of the Industrial Upgrading Act. The premium will not be included in the unappropriated re-tained earnings for the calculation of 10% surplus tax.
Conversely, any loss from such transaction may not be deducted when calculating the company's unappropriated retained earnings for the year. However, if the loss is offset against retained earnings of the company, any portion of the loss that is offset against the after-tax profit of the then current year may be deducted from that year's unappropriated re-tained earnings. Moreover, if the amount offset includes unappropriated retained earn-ings accumulated from fiscal year 1998 or subsequent years, the tax credit associated with the amount offset should be deducted from the imputed credit account.
