HIGHLIGHTS OF CMAA AMEND-MENTS

07/01/2004

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Amendments to the Corporate Mergers and Acquisitions Act (CMAA) were promulgated by the President on 5 May 2004. The main content of the amendments is outlined below:

A demerger is a transaction whereby one company transfers to another company all or part of a business that can be operated inde-pendently in consideration of new shares is-sued by the acquiring company. This does not involve a share swap ratio. Therefore, to clarify the related requirements, a new Para-graph 2 is added to Article 6 to require an in-dependent expert's opinion to appraise the reasonableness of the price of the new shares issued by the acquiring company, and of the asset value assigned to the transferred busi-ness or assets. An order issued by the Ministry of Economic Affairs on 25 May 2004 defines an independent expert in this context as a cer-tified public accountant, an attorney, or a se-curities underwriter.

Article 8 Paragraph 1 Subparagraph 2 is amended to exclude employees' and existing shareholders' priority subscription rights under the Company Act, and the requirement that a certain proportion of newly issued shares be issued publicly under the Securities Exchange Act, if the entirety of a new share issuance by a company is used to purchase the business or assets of another company.

The amended Article 13 of CCMA allows a company to choose one of following three methods of handling shares repurchased from dissenting shareholders, according to the practical needs of the M&A transaction: (1) to transfer them to the shareholders of the target company, as part of the consideration under the merger or acquisition agreement; (2) to directly cancel them and register their can-cellation; or (3) to resell them at the market price within three years.

The old CMAA applied only to companies limited by shares. To facilitate corporate re-structuring, the scope of Article 19, on short-form mergers, can now apply to a sub-sidiary organized as a limited company in which the parent holds at least 90% of the total capital contribution.

Article 33 Paragraph 1 Subparagraph 4 is amended to provide that when a company is demerged, depending on the design of the in-dividual transaction, the new shares issued by the acquiring company may be issued entirely to the demerged company (vertical split), en-tirely to the shareholders of the demerged company (horizontal split), or issued partly to the demerged company and partly to its shareholders (achieving a partial reduction in capital).

In reference to the relevant US and Japanese legislation, a new Paragraph 2 is added to Ar-ticle 40 to explicitly provide that if a company elects to file consolidated business income tax returns, these must include the income of all its eligible Taiwanese subsidiaries. Prior ap-proval is not required before electing to file consolidated returns, but after such an choice has been made, it may not be reversed except for legitimate reasons, and the change must be made within two months before the end of an accounting year and with the approval of the tax authorities.

To prevent companies changing their method of income tax filing at will, a new Paragraph 3 is inserted to provide that after a company has re-ceived permission to revert to separate filing, it may not elect to file consolidated returns again for five years after the change to separate filing. Additionally, if a subsidiary becomes ineligible for consolidated filing due to a change in shareholding status, and therefore switches to separate filing, it may not be included in con-solidated filings again for five years after the change to separate filing. However, a resolution attached to the amended CCMA by the Legisla-tive Yuan requires that two years after the pas-sage of the amendments, the Ministry of Eco-nomic Affairs and the Ministry of Finance must jointly review the five-year restrictions on changes in filing method imposed by Article 40.