Investing Taiwan (Issue 3)

Date: Sep 2013

Chinese Investment

  • Mainland Affairs Council announced the amendment of “Regulations Governing Advertising Goods, Labor and General Services of Mainland China in Taiwan”

On August 29, 2013, Mainland Affairs Council announced the amendment to Article 9-1 and Article 10 of “Regulations Governing Advertising Goods, Labor and General Services of Mainland China in Taiwan”.

The amendment of article 9-1 provides the regulations about governing power over such advertisement activities. If there are more than one competent authority responsible for an advertisement, these authorities need to coordinate with one another and determine which one takes full power regulating such advertisement. This rule applies to related advertisements that are necessary to be regulated in one case. Mainland Affairs Council will coordinate with related competent authorities and decide the governing authority in case of disputes.

The amendment of article 10 provides the process of examination. If the content of an advertisement is suspected to contain political promotion for communist party of china or violate current cross-strait policies, the advertisement has to be examined and evaluated by a provisional evaluation committee, which consists of scholars, experts or related groups retained by Mainland Affairs Council, who profess in law, advertising, marketing or Chinese affairs. The result of evaluation will be sent to the governing authority as a recommendation. In other situation, governing competent authorities are allowed to meet related scholars, experts or groups and deal with those situations based on their own power and responsibilities.

Consumer Protection

  • The judgment regarding extent of liability of business operators

On July 2, 2013, Taiwan High Court made a judgment regarding extent of liability of business operators of Article 7 of Consumer Protection Law. In this decision, the court held that once business operators can foresee the possibility of the danger to the consumers incurred by their products, it should attached the warning label and emergency guidelines at a conspicuous part of the product. If its failed to do so, the company may be liable for the consumer’s injury, even the consumer improperly use the product and get injured.

Securities

  • Court judgment regarding the examination of an information is “material” or “precise” in the cases of insider trading.

The Taiwan High Court announced its decision of 100 Jin-Shang No. 27 on June 18, 2013 regarding the elements of “material information” and “after the information is confirmed” set forth in Article 157-1 of the Securities and Exchange Act.

According to Paragraph 1, Article 157-1 of the Securities and Exchange Act, upon actually knowing of any information that will have a material impact on the price of the securities of the issuing company (namely the material information), after the information is comfirmed, and prior to the public disclosure of such information or within 18 hours after its public disclosure, the insiders shall not purchase or sell, in the person's own name or in the name of another, shares of the company that are listed on an exchange or an OTC market, or any other equity-type security of the company

In this decision, the court held that in examining whether the information is “material” or “confirmed” in the cases of insider trading, in addition to (1) Regulations Governing the Scope of Material Information and the Means of its Public Disclosure Under, Paragraphs 5 and 6 Article 157-1 of the Securities and Exchange Act and (2) foreign law or precedent (the court cited two of the prior cases of US Supreme Court, TSC Industries, Inc. v. Northway, Inc., 426. U.S. 438 (1976) and Basic v. Levinson, Inc., 485 U.S. 224 (1988) in this decision), the court shall also take (1) the industry/professional standard, (2) the process of formation of such information, and (3) the nature of such information into consideration. In other words, the examination standard on “material/confirmed” information of each company may be different and the court shall avoid making confirmed generalizations in future cases.

  • The FSC announced the updated definition of the “substantial amount of loan” which may cause FSC’s rejection of securities issuance application

Replacing the previous ruling of Jin-Guan-Chen-Fa-Zi No. 1020029369A, the Financial Supervisory Commission (“the FSC”) announced its ruling of Jin-Guan-Chen-Fa-Zi No. 10200293698 on August 27, 2013, which provides the definition of the “substantial amount of loan”, set forth in Item 6, Paragraph 1, Article 8 of the Regulations Governing the Offering and Issuance of Securities.

The announcement declares that the FSC may reject the company’s application of capital increase or issuing corporate bonds if it has lent its money to other parties up with whom it conducts no transaction, and if the aggregate amount of such loan meets either of the unjustifiable threshold listed below:

  1. NT$ 30,000,000 (around US$ 1,000,000)
  2. 1% of the net sales in financial report (consolidated financial report applies if the company is a holding company)
  3. 5% of the paid-in capital
  4. 20% of the aggregate par value of the shares or bonds to be issued

Tax

  • Amendment of “The Regulations Governing Customs Clearance for Goods in Free Trade Zones”

To simplify the customs declaration process and reduce administrative costs, Ministry of Finance issued the amendment of “The Regulations Governing Customs Clearance for Goods in Free Trade Zones” on August 28, 2013, as the promotion of the 1st stage of the Free Economic Demonstration Zones (the “FEDZs”).

The points of this amendment are as follows:

  1. Magnifying the efficacy of depot in a free trade zone: A free-trade-zone enterprise may mandate or be retained to handling of the matters related to the repair, test, inspection, and processing of goods.
  2. Simplifying the conditions and procedures of the approval of processing of goods in FEDZs: to enhance the efficiency of reviews and approvals, as well as to coordinate the approval goods processing by the FEDZs Administration at the 2nd stage of the FEDZs establishment, the Customs may authorize the FEDZs Administration to handle the receipt, reviewing, and approval of the goods processing application.
  3. Simplifying book-keeping matters related to the entrance and withdrawal of goods.
  4. Ease the restrictions on the handling of the waste and scraps: upon the FEDZs Administration’s approval, the FEDZs enterprises may be exempted from the requirement of shipping back its waste and scraps generated during processing goods.
  5. Ease the regulation of the stocktaking:

i. Upon the Customs’ approval, the annual stocktaking may be conducted by the Customs outside the FEDZs if the goods cannot be shipped back to FEDZs after repair, inspection, testing, processing or exhibition.

ii. For the stocktaking of the materials with the same serial numbers but categorized as duty-free and duty-paid, the quantity of the duty-free materials shall be offset firstly against the total quantity used if the actual quantity cannot be clearly separated. However, the FEDZs enterprises will be exempted from duty repayment upon short inventory of duty-paid materials.

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