Executive summary

The merger of Shin Kong Financial Holding Co., Ltd. (SKFH) into Taishin Financial Holding Co., Ltd. (Taishin FHC) is set to take effect on 24 July 2025, resulting in the delisting and dissolution of SKFH. Common stock shareholders of SKFH will receive common and preferred shares of Taishin FHC as consideration. For tax purposes, common stock shareholders are deemed to receive dividend income of 3.8074 New Taiwan Dollars (NT$3.8074) per share if proof of the actual acquisition cost is unavailable. A 21% withholding tax will be imposed on FINI shareholders who do not qualify for tax treaty benefits.

However, within the 10-year statute of limitations, a FINI shareholder may appoint a Taiwan tax agent to apply for a tax reclaim from the Taiwan tax authority if the actual acquisition cost of the SKFH common shares, calculated using the First-In, First-Out (FIFO) method, exceeds NT$10.259 per share and supporting documents for the cost are available for audit by the tax authority.

Detailed discussion

Overview of the merger

SKFH and Taishin FHC are engaged in a "merger of equals" transaction. In this arrangement, Taishin FHC will be the surviving entity, while SKFH will be delisted and subsequently dissolved upon the merger's completion. The merger has received the necessary regulatory approvals from the Financial Supervisory Commission (FSC), with an effective date set for 24 July 2025.

As part of the merger consideration, the common stock shareholders of SKFH will receive:

• 0.6720 common shares of Taishin FHC for each SKFH common share
• 0.175 H-class preferred shares of Taishin FHC for each SKFH common share; these H-class preferred shares have a face value of NT$10 and annual dividend yield of 1.665%, and are scheduled to be redeemed at their issue price within three years

Tax characterization of merger consideration

According to Ministry of Finance (MOF) Ruling No. 09704552910, if the merger consideration that a company receives exceeds the total capital contributions of all its shareholders, the excess portion distributed to shareholders will be treated as deemed dividend income. Additionally, per MOF Ruling No. 10304030470, in a merger providing consideration in shares, the value of the new shares issued by the surviving company should be determined on the date of the board resolution that establishes the share-exchange ratio. For the valuation of listed or over-the-counter stocks, the closing price on the date of the board resolution will apply.

Based on the two tax rulings cited above, the announcement released by SKFH explains, the value of new shares issued by Taishin FHS as merger consideration is set at NT$14.0664 per share, while the total capital contribution of all common shareholders calculated by SKFH is NT$10.2590 per share. Consequently, there is a deemed dividend income of NT$3.8074 per share for the common shareholders of SKFH that must be recognized and taxed due to the merger. For FINI common shareholders, this deemed dividend income will be subject to a 21% withholding tax at source if no tax treaty applies.

Tax reclaim potential: Recognizing actual acquisition cost

FINIs may have an opportunity to reduce their taxable deemed dividend income and claim a refund. According to MOF Ruling No. 09700312710, if a FINI common stock shareholder of SKFH asserts that the acquisition cost of SKFH shares, calculated using FIFO, is higher than the total capital contribution amount determined by SKFH (i.e., NT$10.2590 per share), the FINI is entitled to apply this higher cost to its deemed dividend income. Furthermore, the FINI may appoint a resident individual or a profit-seeking enterprise with a fixed place of business in Taiwan to act as its tax agent for applying for a refund of overpaid withholding tax from the Taiwan tax authority. Supporting documents evidencing the acquisition cost must be provided to the relevant tax authority for audit. The refund application must be submitted within the 10-year statute of limitations as per Article 28 of the Tax Collection Act.

Implications

FINIs should consult with local custodians regarding this potential withholding tax reclaim opportunity to determine if the actual acquisition cost of cancelled SKFH shares can be recalculated using the FIFO method, and whether this cost exceeds the default capital contribution amount calculated by SKFH. Additionally, FINIs should verify with local custodians and qualified tax agents that the supporting documents for acquisition costs are available and adequate for tax reclaim purposes.