TAX IMPLICATIONS ON THE SHAREHOLDERS OF A FINANCIAL INSTITUTION OF WHICH ALL THE SHARES ARE TRANSFERRED TO A FINANCIAL HOLDING COMPANY IN A SHARE SWAP TRANSACTION

09/01/2012

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The Ministry of Finance (MOF) issued a tax ruling on 15 August 2012 setting forth the tax implications on the shareholders of a financial institution ("Shareholders") of which all the shares are transferred to a financial holding company in exchange for cash and the new shares to be issued by the latter ("New Shares") pursuant to Article 26 of the Financial Holding Company Act ("FICA") and the directive issued by the Financial Supervisory Committee on 12 December 2005. The key points of the MOF's tax ruling are as follows:

1.

Item 4, Article 28 of the FICA (whereby capital gains from securities transactions are exempt from securities transactions tax and income tax) applies to the Shareholders' transfer of their shares in the financial institution as consideration for the New Shares. Accordingly, any capital gains from such share swap transaction are also exempt from alternative minimum tax ("AMT").

2.

As for the cash received by the Shareholders from the holding company, Item 4, Article 28 of the FICA, as mentioned above, does not apply. For the portion of the cash that falls into the category of "capital gains from securities transactions", while it is exempt from income tax, it is subject to AMT.

3.

The amount of "capital gains from securities transaction"("A1") referred to in Point No. 2 above should be calculated as follows:

A1 = A2 x C / (B +C)

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B = total subscription price of New Shares

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C = total cash received by the Shareholder

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D = the sum of (i) total cost of the Shareholder's acquisition of shares in the financial institution and (ii) total expense incurred by the Shareholder for the share swap

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A2 = total capital gains generated by the Shareholder from the share swap = B + C – D