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Dividend Income Deemed as Received from Merger Between Parent Company and its Non-wholly-owned Subsidiary can be Excluded from Being Calculated into Exempted Sales Amount
In the event that the subsidiary merged into its parent company and the net asset value of the subsidiary received by the parent company exceeds the capital contribution made by the parent company, the excess shall be deemed as dividend income. The dividend income received by a profit seeking enterprise concurrently engaged in the investment business shall be consolidated into the exempted sales amount of the last VAT return in the year for calculating the non-deduction ratio and the VAT thereof accordingly.
The Ministry of Finance ("MOF") issued the Ruling Ref. No.: Tai-Cai-Shui-Zi-09704526820, dated 19 June 2008, which pronounced that the dividend income deemed as received from the merger between a parent company and its wholly-owned subsidiary is, by its nature, different from the actual distribution of cash or stock dividends. As a result, such income can be excluded from being calculated into the exempted sales amount of the last VAT return in the year of the merger, in order to calculate the non-deduction ratio and the VAT thereof.
The MOF, in its Ruling Ref. No.: Tai-Cai-Shui-Zi-10304608280, dated 21 January 2015, acknowledged that even in the case of a merger between a parent company and its non-wholly-owned subsidiary, the dividend income deemed as received by the surviving parent company shall also be excluded from being calculated into the exempted sales amount of the VAT return and the VAT for the same purpose. Hence, the former ruling (Ref. No.: Tai-Cai-Shui-Zi-09704526820) was abolished after the effective date of the latter ruling (Ref. No.: Tai-Cai-Shui-Zi-10304608280).