| Content |
Order of the Financial Supervisory Commission
Issue date: 31 March 2021
Issue no.: Financial-Supervisory-Securities-Corporate-1090150022
- This order is issued pursuant to Article 41, paragraph 1 of the Securities and Exchange Act.
- To maintain the sound and stable financial structure of public companies, unless the Financial Supervisory Commission (FSC) or a competent authority of a relevant industry has otherwise made supplementary provisions, the provisions set out below shall apply. A public company shall apply these provisions beginning from its distribution of earnings for fiscal year 2020, but may be postpone beginning their application until the distribution of earnings for fiscal year 2021:
- When a public company adopts for the first time the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), and Interpretations developed by the International Financial Reporting Interpretations Committee (IFRIC) or the former Standing Interpretations Committee (SIC) (hereinafter, collectively, "IFRS") as endorsed by the FSC , for any unrealized revaluation increment or cumulative translation adjustment (profit) accounted for under shareholders' equity, if it is transferred to retained earnings because the company chooses to apply an exemption under IFRS 1, the company shall allocate the same amount respectively in special reserve. However, if on the transition date the amount of the increase in retained earnings arising from the first-time adoption of the IFRS is insufficient to make the allocation mentioned above, the company may make the allocation based merely on the amount of the increase in retained earnings arising from the transition to the IFRS, and when there is subsequently any use, disposal, or reclassification of the relevant assets, the company may reverse and book for earnings distribution the corresponding proportion originally allocated to special reserve.
- When a public company distributes distributable surplus, it shall allocate special reserve in the manners listed below, and the special reserve may not be distributed:
- With respect to the book net amount of other deductions from equity (for the cumulative balance of, for example, exchange differences resulting from translating the financial statements of foreign operations, unrealized gains or losses in the fair value of financial assets through other comprehensive income, gains or losses on hedges, revaluation increments) for the period in which it arises, an equivalent amount of special reserve shall be allocated from the amount of the after-tax net profit for the period, plus items other than after-tax net profit for the period, that are included in the undistributed earnings of the period. If there remains any insufficiency, it shall be allocated from the undistributed earnings of the previous period.
- With respect to the cumulative net amount of other deductions from equity in a preceding period(s), the company shall choose one of the following methods to allocate special reserve, which may not be distributed:
- Allocate an amount of special reserve equal to the amount allocated to undistributed earnings for the preceding period.
- Allocate an amount of special reserve equal to the amount allocated to undistributed earnings for the preceding period. If there remains any insufficiency, allocate it from the amount of the after-tax net profit for the period, plus items other than after-tax net profit for the period, that are included in the undistributed earnings of the period. Furthermore, if this method is to be used, it shall be expressly provided in the dividend policy specified in the company's articles of incorporation.
- If a company has already allocated special reserve under the preceding subparagraph, it shall make supplemental allocation of special reserve for any difference between the amount it has already allocated and the amount of special reserve it is required to allocate under the preceding two items. If subsequently there is any reversal of the net amount of other deductions from equity, the amount of the reversal may be reversed from special reserve and booked for earnings distribution.
- A public company that, in accordance with Point 2 herein, postpones the application of these provisions until the distribution of earnings for fiscal year 2021 shall, when distributing earnings for fiscal year 2020, allocate special reserve in accordance with the 6 April 2012 FSC Order No. Financial-Supervisory-Securities-Corporate-1010012865.
- To maintain the sound and stable financial structure of companies and prevent the erosion of capital from earnings distributions, to the detriment of shareholder interests, all TWSE listed, TPEx listed, and Emerging Stock companies shall allocate special reserve in accordance with the provisions of Point 2 and the preceding point hereinabove. Furthermore, if such a company's subsidiary at period end holds stock of the parent company with a market value lower than book value, the company shall, pro-rata to the company's shareholding percentage, allocate special reserve in an amount equal to the amount of the difference between the market value and book value. If the market value subsequently rises, the TWSE listed, TPEx listed, or Emerging Stock company may, pro-rata to the company's shareholding percentage, reverse the amount of special reserve corresponding to the amount by which the value has risen.
- This Order is effective from this day forward. The 6 April 2012 FSC Order No. Financial-Supervisory-Securities-Corporate-1010012865 is repealed from 31 December 2021. The 21 November 2012 FSC Order No. Financial-Supervisory-Securities-Corporate-1010047490 is repealed from this day forward.
|