RULES ANNOUNCED FOR MERGERS WITH FOREIGN FI-NANCIAL INSTITUTIONS

11/01/2001

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To provide a legal framework for mergers or general assumption or assignment of all assets and liabilities between foreign and domestic fi-nancial institutions, and to regulate their post-merger operations on 24 July 2001 the Ministry of Finance (MOF) promulgated the Regulations Governing Mergers, General As-sumptions and General Assignments between Foreign and Domestic Financial Institutions based on the authorization from Article 18 Paragraph 4 of Financial Institutions Merger Law. The main content of the regulations is described below.

I. Definition of a foreign financial institution

A foreign financial institution under the regula-tions means a company incorporated under a foreign law engaged in the business of banking, securities, futures, insurance or trust.

II.Certain requirements

The surviving or newly incorporated financial institution after the merger:

1.Where a bank merges with another finan-cial institution in the banking sector, the surviving or newly incorporated institution must be the bank.

2.Where a securities company merges with another financial institution in the securi-ties and futures sector, the surviving or newly incorporated institution must be the securities company.

3.Where a non-life insurance company merges with a mutual insurance society, the surviving or newly incorporated institution must be the non-life insurance company.

Factors reviewed by the authority governing the merger:

1.The effect of increased economic scale, operating efficiency and international competitiveness;

2.The effect on competition in the financial market;

3.An assessment of the financial conditions, management capabilities and sound opera-tion of the surviving or newly incorporated financial institution; and

4.The effect of enhanced public interest, in-cluding raising financial stability, improv-ing the quality and convenience of financial services and bailing out of troubled finan-cial institutions.

III. Authentication of application documents

The foreign financial institution concerned in a merger should carry out the procedures as re-quired under the relevant legislation of the ter-ritory in which it is incorporated, such as resolu-tions, notifications or public announcements, and measures to protect the rights and interests of shareholders and creditors. The ROC financial institution should carry out the procedures in accordance with the relevant provisions of the Financial Institutions Merger Law. Documents such as minutes of the foreign institution's shareholders' or board meeting, photocopy of its business license, and the power of attorney des-ignating its representatives in the ROC for liti-gatory and non-litigatory matters, should be no-tarized, or authenticated by the ROC consular staff overseas.

IV.General assumption by a foreign finan-cial institution of the business and assets of an ROC financial institution

When a foreign financial institution applies for a merger or acquisition, it should at the same time apply for company registration and for operation permit in accordance with the Banking Law, the Securities and Exchange Law, the Futures Trading Law, the Insurance Law and the Trust Enterprise Law, as the case may be, and may not commence the business unless it completes these procedures. The foreign financial institution should assume the business, assets and liabilities of the merged domestic financial institution unless otherwise provided in the merger agree-ment.

V. Tax benefits

After a merger is permitted by the regulatory authority, when the surviving or newly incorpo-rated financial institution applies for registration of change of ownership related to any real prop-erty, chattels and security interests of the merged institution, the surviving institution may be ex-empted from any registration fee, as well as all stamp duty and deed tax payable.

Before land owned by the merged financial in-stitution is transferred, its current value should be assessed in accordance with the Land Tax Law. Increment tax on land value may be deferred and becomes payable together with any further in-crement tax when the land is further transferred. But no increment tax is payable on land acquired by the merged financial institution through fore-closure of mortgages.