Taiwanese regulators to clamp down on private equity deals

The Carlyle Group’s investment in Advanced Semiconductor Engineering, valued at $6.4bn, has prompted the government to review the its existing investment restrictions and tax regulations.

The Carlyle Group’s pending acquisition of Taiwan’s Advanced Semiconductor Engineering, the world largest microchip packaging and testing firm, has reportedly prompted Taiwanese regulators to review the rules that govern foreign investments.

Under existing law Carlyle’s profits from selling its shares in the chip company on exit would be treated as a capital gain and as such tax-free.

Taiwan’s Ministry of Finance is planning to treat profits from the sale of redeemable preferred shares as stock dividends, and liable to 20 percent tax, or 10 percent if the host country of the foreign investor has a tax agreement with Taiwan.

The proposal would hit Carlyle’s profits, according to a report in the Taiwan Economic News.

The Ministry of Finance also spotlighted Newbridge Capital’s investment in Taishin Financial Holdings earlier this year, acknowledging existing legal regulations as inadequate.

Part of the Newbridge’s deal involved redeemable preferred shares, which Taishin is required to buy back in three years. 

In Taiwan Economic News report, the ministry said it “would continue studying the financial operations of private equity funds and formulate proper countermeasures.”