Foreign institutional investors might see a tax advantage opportunity due to the merger in Taiwan.
Shin Kong Financial Holding Co., Ltd. (SKFH) and Taishin Financial Holding Co., Ltd. (Taishin FHC) are set to merge on 24 July 2025, leading to the delisting and dissolution of SKFH. This news has significant tax implications for common stock shareholders, particularly Foreign Institutional Investors (FINIs).
Common shareholders of SKFH will receive both common and preferred shares of Taishin FHC as consideration. The total capital contribution of all common shareholders, calculated by SKFH, is NT$10.2590 per share. However, for those FINIs where proof of the actual acquisition cost is unavailable, the deemed dividend income is NT$3.8074 per share.
For FINIs, it is crucial to note that the deemed dividend income is subject to a 21% withholding tax if no tax treaty applies. To reduce their taxable deemed dividend income, FINIs can claim a refund within the 10-year statute of limitations. This can be achieved by using the First-In, First-Out (FIFO) method to calculate the actual acquisition cost of their SKFH shares and providing the necessary documentation for cost verification.
If the actual acquisition cost, calculated using the FIFO method, exceeds NT$10.259 per share, a tax reclaim opportunity exists. FINIs are advised to verify this with their local custodians and qualified tax agents.
The value of new shares issued by Taishin FHS as merger consideration is set at NT$14.0664 per share. FINIs may appoint a resident individual or a profit-seeking enterprise with a fixed place of business in Taiwan to act as their tax agent for applying for a refund of overpaid withholding tax from the Taiwan tax authority.
The Tax News Update: Global Edition (GTNU) contains a full listing of contacts and email addresses for tax professionals available to assist with this matter, including Ernst & Young (Taiwan) and Ernst & Young LLP (United States). FINIs are encouraged to consult with these professionals to ensure they are fully aware of their tax obligations and potential reclaim opportunities.
It is important to note that supporting documents evidencing the acquisition cost must be provided to the relevant tax authority for audit. FINIs should verify with their local custodians and qualified tax agents that the supporting documents for acquisition costs are available and adequate for tax reclaim purposes.
In conclusion, the upcoming merger of SKFH and Taishin FHC presents both opportunities and challenges for FINIs. By understanding their tax obligations and potential reclaim opportunities, FINIs can navigate this process effectively and maximise their returns.
