New Developments in Taiwan’s Merger and Acquisitions Practice

In late May 2022, Taiwan's Legislative Yuan passed a bill to amend the Business Mergers and Acquisitions Act (the "BMAA" or the "Act").  The BMAA, enacted in 2002, is a regulatory framework for the M&A practice in Taiwan.  Before these recent amendments, the BMAA did not require businesses subject to the Act to ensure that their shareholders had timely and adequate access to information regarding equity stakes or board positions held by interested directors.
This lacuna led Taiwan's Constitutional Court to pass judgment (Judicial Yuan Shi-Tzi No. 770 Interpretation), in 2018, stating that the legislature would need to revise the Act in order to protect shareholder rights. In particular, the Constitutional Court held that the Act shall ensure that a shareholder will have timely access to information about the proposed transaction before a business proceeds with the merger.  Without said information, the Constitutional Court determined a shareholder who would be against the proposed transaction might have no meaningful remedies available to secure his/her property rights.
Taiwan's Ministry of Economic Affairs (MOEA), the regulatory agency supervising the M&A practice in Taiwan, responded to the Constitutional Court's mandates by subsequently proposing the recent amendments to the BMAA to the legislature.  Under Article 5 of the amended BMAA, when a corporation plans a merger or acquisition, in the event that a director of the corporation is a stakeholder in the merger or acquisition, the corporation is obligated to disclose the material facts of the director's interest in the transaction in the notice to convene the shareholder meeting to approve the transaction.  The notice must also set out the pros and cons of the merger or acquisition.  Pursuant to Article 12 of the amended BMAA, if a shareholder opposes said transaction and votes against the proposal, the shareholder can exercise their appraisal rights to have the corporation repurchase their shares at a fair price.  This new disclosure requirement is thus intended to better secure shareholder equity.  The amended BMAA sets forth a route for a shareholder against the proposed transaction, allowing said shareholder to secure his/her own property interests.
According to a press release from the MOEA (https://www.moea.gov.tw/Mns/populace/news/News.aspx?kind=1&menu_id=40&news_id=100128), in addition to protecting shareholder rights, the BMAA amendments have two foci: liberalizing whale-minnow mergers and providing tax flexibility in startup acquisitions.
It is notable that the BMAA amendments significantly lower the threshold for whale-minnow mergers.  In the future, under Articles 18, 29, and 36 of the amended BMAA, a whale-minnow merger may proceed if a merging corporation meets one of the following requirements:
(1) the merging corporation is using no more than 20% of its total issued shares as consideration for the shares of the merged company, or
(2) the merging corporation is using a combination of shares, cash, and other assets that that are equal to no more than 20% of its total asset value as consideration for the shares of the merged company.
If one of the above requirements is met, under Articles 29 and 36 of the amended BMAA, the merging corporation may proceed with a whale-minnow merger without obtaining shareholder approval.  This regulatory reform is believed to considerably increase efficiency of the M&A practice, freeing corporations from engaging in unnecessary procedural formats.
Moreover, the BMAA amendments provide greater tax flexibility in acquisitions of startups.  Pursuant to Articles 40-1 and 44-1 of the amended BMAA, they not only allow individual shareholders of merged startups to defer tax on the amount paid as consideration for the startup's shares, but also permit the acquiring company to amortize intangible assets (e.g. intellectual property, integrated circuit layout rights) acquired in the transaction for the relevant statutory period or ten years.  This amortization rule should help the acquiring corporation calculate its tax burden more easily.  This regulatory change is believed to incentivize startups that may bring to the market more and more innovation and fresh ideas.
Consequently, according to the MOEA, these recent amendments to the BMAA are expected to enhance protection of shareholder equity through greater transparency regarding insider stakes in M&A transactions as well as to simplify or incentivize certain types of common transactions.

Authors: Dr. Brian, Hsiang-Yang Hsieh, Partner of Formosa Transnational, and Chia-Hsin Wu, Associate of Formosa Transnational
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