1. Regulations Governing Recognition of Income from Controlled Foreign Companies for the Profit-seeking Enterprises and Regulations Governing Calculation of Income from Controlled Foreign Companies for Individuals.
The Ministry of Finance promulgated the Regulations Governing Recognition of Income from Controlled Foreign Companies for the Profit-seeking Enterprises and Regulations Governing Calculation of Income from Controlled Foreign Companies for Individuals on 14 December 2018 and 21 December 2018 respectively. The effective date will be announced separately. We summarized the major points below:
(1) The criteria for the tax collection authority to assess whether the profit-seeking enterprise (or individual) and its(his/her) affiliates directly or indirectly holds the shares or capital of 50% or more or has significant influence on the affiliated companies in the low-tax countries or area outside the territory of Taiwan.
(2) The criteria for the tax collection authority to assess whether the controlled foreign company (CFC) has the actual business operation in the country or region where it is located.
(3) The criteria for the tax collection authority to assess whether the annual surplus of the CFC in the current year is under the standard, and the calculation of the recognition for the addition and subtraction of the annual surplus of the CFC.
(4) The criteria for the tax collection authority to assess the deduction of investment profit from the CFC.
(5) The criteria for the tax collection authority to calculate the actual surplus or dividend received from the CFC by the profit-seeking enterprise (or individual).
(6) When calculating the profit and loss for disposing the shares or capital of the CFC, it shall be calculated and verified by the difference of the shareholding ratio before and after the disposal and the share transfer agreement.
(7) Where the profit-seeking enterprise (or individual) disposes the shares or capital of the CFC resulting that such company no longer constitutes a CFC, the residual of the recognized investment profits of the CFC may be deducted from the actual allocated dividend or surplus in the following years or deducted from the income or loss of the disposal in accordance with Item 6 above.
Reported by: Stacy Lo / Hsiyen Hsu
2. Income Basic Tax Act Related Matters
On 17 December 2018, the Ministry of Finance announced the Income Basic Tax Act (the Act) related matters for year 2019 as follows:
(1) If the basic income of the profit-seeking enterprise in 2019 is NTD 500,000 or less, no alternative minimum tax (AMT) will be levied.
(2) For individuals having a basic income of NTD 6.7 million or less in 2019, no AMT will be levied.
(3) If the basic income of the profit-seeking enterprise in 2019 exceeds NTD 500,000, the AMT will be calculated by the tax rate set by the Executive Yuan (currently 12%) of the basic income after deducting NTD 500,000.
(4) If the basic income of an individual in 2019 exceeds NTD 6.7 million, the AMT will be calculated by 20% of the basic income after deducting NTD 6.7 million.
(5) If the annual insurance death benefit for the life insurance and annuity insurance where the beneficiary and policy holder are not the same under the proviso of sub-paragraph 2, paragraph 1, Article 12 of the Act for each taxpayer does not exceed NTD 33.3 million, such part will not be calculated into the basic income of the individual.
Reported by: Stacy Lo / Jack Tai
3. Recognition on Employee Incentives of the Affiliate Companies
(1) On 28 December 2018, the Ministry of Finance issued a ruling to explain that the affiliate company may recognize the incentive of their employees given according to the Company Act, Securities Exchange Act and the Financial Holding Company Act as the salary expense of that affiliate company when reporting the Business Income Tax.
(2) If the employee of the affiliate company abandons the employee incentive afterward, fails to retrieve the payment causing the claim extinguished due to the time limitation, or disqualifies due to not meeting the service years or conditions under the incentive plan, or the stock option expired and became invalid, causing the confiscation of the granted incentives, the affiliate company shall list the expenses recognized in this portion as the income of that abandonment year; extinguishment year; the confiscation year or the invalid year.
Reported by: Stacy Lo / Evelyn Shih
4. Draft Regulations Governing Merger of Foundations for Public Consultation
The Ministry of Justice preannounced the draft Regulations Governing Merger of Foundations pursuant to Article 34 of the Foundation Act on 13 December 2018. The draft regulations provide for the restrictions on mergers of foundations, the terms and conditions to apply for approvals, execution of merger contract and the items that should be specified therein, application procedures, required documents, the time for competent authorities to process the application, the time for registration after merger, and abolishment of merger approval.
Reported by: Kangshen Liu / Chenchi Wang
Financial Holding Company
5. Amendment to Financial Holding Company Act
On 25 December 2018, the Legislative Yuan passed the amendments to the Financial Holding Company Act (the Act). We summarize the amendments as follows:
(1) For violation of Paragraph 2, Article 58, Article 60 and Article 61 of the Act, the maximum amount of administrative fine is increased to NTD 50 million.
(2) For violation of Article 62 of the Act, the maximum amount of administrative fine is increased to NTD 20 million.
(3) If a financial holding company or the punished person fails to take corrective measures within the period of time prescribed by the Financial Supervisory Commission (FSC), the FSC may impose penalties each time a violation occurs.
Reported by: Stacy Lo / Deborah Lee
6. Increase of Offshore Fund's Investment Percentage in China
On 27 December 2018, the FSC published a press release to provide that the offshore fund's investment percentage in China securities will be adjusted as follows to accommodate the increase to the weight of China A share in relevant indexes and to encourage the contribution to Taiwan under the incentive plan:
(1) For each offshore fund offered and distributed in Taiwan, the investment percentage in China securities will be increased from 10% to 20% of the net asset values of the offshore fund; and
(2) For those qualifying favorable treatment under the incentive plan, the percentage will be increased from 30% to 40%.
On 4 January 2019, the FSC further issued a ruling to implement the above-mentioned change.
Reported by: Jeffrey Liu / Evelyn Shih
7. Securities Investment Consulting Enterprises may Provide Fin-Tech Consulting and Advisory Services with respect to Automated Investment Advisory Services
On 21 December 2018, the FSC issued a ruling to allow securities investment consulting enterprises (SICEs) to provide fin-tech consulting and advisory services with respect to financial institutions’ automated investment advisory services. The clients under the subject business are limited to financial institutions and/or companies that engage business with financial institutions with respect to automated investment advisory services. SICEs can only provide the said service after obtaining the approval of the FSC.
Reported by: Jeffrey Liu / Eliza Lee
8. Internal Control System of Information Security for Securities Investment Trust Enterprises and Securities Investment Consulting Enterprises
On 26 December 2018, the Securities Investment Trust & Consulting Association of the R.O.C. (SITCA) announced the updated Internal Control System of Information Security for Securities Investment Trust Enterprises and Securities Investment Consulting Enterprises, and required all securities investment trust enterprises (SITEs) and SICEs to cooperate with the revision of internal control systems or code of conducts. The key points are summarized as follows:
(1) The SITEs, SICEs concurrently engaging in discretionary investment business or approved by the FSC to conduct the fund's electronic trading business shall be equipped with appropriate human resources and equipment for information security, and shall issue a declaration on overall information security in accordance with the format prescribed by the FSC. The declaration shall be submitted to the board of directors for approval, and shall be disclosed on the Market Observation Post System within three (3) months after the end of each fiscal year.
(2) Supervisors and personnel responsible for information security shall take at least fifteen (15) hours of information security professional training or occupational training and pass the exam each year. Other practitioners using information systems shall take at least three
(3) hours of courses on information security promotion each year.
Reported by: Jeffrey Liu / Jack Tai
9. Amendment to Template for the Securities Investment Trust Agreement and the Related Regulation
On 26 December 2018, the FSC responded to the proposal of the SITCA in connection with templates of securities investment trust agreement. The key points are summarized below:
(1) The threshold that a management company is required to inform the subscribers of the net asset value (NAV) and the number of beneficiaries when the NAV of a specific fund is less than certain amount stipulated under the template for the Securities Investment Trust Agreement of domestic open-end equity funds, foreign equity funds, foreign equity funds (only applicable to multi-currency funds denominated by foreign currency), foreign equity funds (only applicable to multi-currency funds including New Taiwan Dollars), open-end balanced funds, open-end fund of funds (including investment in offshore funds) is amended from NTD 300 million to NTD 200 million.
(2) No beneficiaries' meeting nor legal opinion will be required for the amendments to the securities investment trust agreement which has been approved or reported for effectiveness if they are specifically for the above change.
Reported by: Jeffrey Liu / Deborah Lee
10. Amendments to Ruling Regarding Issuance of Employee Stock Option and Transfer of Treasury Stock to Employees
On 27 December 2018, the FSC issued a ruling to amend a previous ruling in connection with the issuance of employee stock option and transfer of treasury stock to employees of public companies. We summarize the key points below:
(1) Extend the scope to allow a public company to issue employee stock option and transfer treasury stock to employees of its onshore and offshore controlling or subordinated companies.
(2) In principle, the above-mentioned arrangement must be recognized by the certified public accountant of the company and reported to the board meeting. However, the new ruling exempts the employees of the company which directly or indirectly holds a majority of the total number of the outstanding voting shares or the total amount of the capital stock of another company from the above requirements.
Reported by: Jeffrey Liu / Cindy Chien
11. Rulings for Applicable Scope of Mandatory Establishment of Independent Directors and Audit Committee
On 19 December 2018, the FSC issued rulings for the scope of entities that are subject to establishment of independent directors and audit committee. We summarize the key points below:
(1) Mandatory Establishment of Independent Directors
(a) According to Article 14-2 of the Securities and Exchange Act (SEA), a financial holding company, bank, bill finance company, insurance company, securities investment trust enterprise, and consolidated securities firm, which is a public company, and a listed futures merchant and listed non-financial institution, shall establish independent director(s) in their article of incorporation. A non-financial institution listed on the emerging stock market shall also establish independent director(s) in their article of incorporation from 1 January 2020. The number of independent directors shall be no less than two or one-fifth of the directors.
(b) According to Article 181-2 of the SEA, a company listed on the merging stock market shall establish Independent director(s) after 1 January 2020, provided that the requirement will not apply to companies whose terms of office of current directors and supervisors will not become due in 2020 until expiration of the same.
(2) Mandatory Establishment of Audit Committee
(a) According to Article 14-4 of the SEA, a financial holding company, bank, bill finance company, insurance company, securities investment trust enterprise, and consolidated securities firm, which is a public company, and a listed futures merchant and a listed non-financial institution with paid-in capital of NTD 2 billion or more, shall establish an audit committee to replace supervisor(s) from 1 January 2020, provided that a financial institution wholly owned by a financial holding company may either establish an audit committee or have supervisor(s).
(b) According to Article 181-2 of the SEA, for those directors and supervisors whose term of office have not due, the timings for the application are as follow:
(A) For a listed non-financial institution, with paid-in capital of NTD 2 billion or more but less than NTD 10 billion, it shall have established an audit committee before the end of 2019.
(B) For a listed non-financial institution, with paid-in capital less than NTD 2 billion, it shall have established an audit committee to replace supervisor(s) from 1 January 2020, provided that the requirement will not apply to companies whose terms of office of current directors and supervisors will not become due in 2020 until expiration of the same.
Reported by: Mike Lu / Will Chen
12. Amendment to Insurance Act
On 25 December 2018, the Legislative Yuan passed its three readings of the amendment to Article 165 of the Insurance Act. The amendment provides that where the insurance agency company or insurance broker company is a public issued company, it shall establish internal control and audit systems as well as business solicitation systems and procedures.
Reported by: David Tsai / Aaron Lai
13. Draft Amendment to Insurance Act
On 20 December 2018, the FSC announced the draft amendment to the Insurance Act for public consultation. We summarize the key points below:
(1) To add that the proposer has insurable interest on the life or body of the spouse and the direct blood relatives, and the requirement of the insurable interest is exempted for the group insurance.
(2) To clarify that the written agreement and the delivery of insurance premiums is not the requirements for the conclusion of the insurance contract, the current Article 21 is deleted and provides that the insurance contract is concluded when the parties have reciprocally declared their concordant intent.
(3) To amend the definition of the double insurance and malicious double insurance. To add that each insurer of the bona fide double insurance shall be jointly and severally liable for the payment of the insurance amount within the scope of the agreed insurance amount. To add that the proposer may terminate the subsequent insurance contracts. To add the provision of return or reduction of the insurance premiums.
(4) To add that the insurer may apply with the public or non-public organization holding the relevant information for checking the contact information of the beneficiary.
(5) To add that after the insurance contract is concluded, the insurer shall deliver the contract to the proposer for him/her to claim the rights of the contract.
(6) To add that the proposer of the personal life insurance under which the term exceeding two years may revoke the contract.
(7) To amend the inform obligation:
(a) The inquiries submitted by the insurer shall be specific and clear. The insurer shall inform the proposerand the insured of the legal effect of breaching the obligation of explanation.
(b) If the matters are known to the insurer or the insurer should have known under usual attention or cannotdeny knowing, the proposer or the insured shall not be obliged to explain.
(c) When the proposer is different from the insured, the insured shall also perform the obligation of informing the increasing risk and the obligation of true explanation.
(8) To add that the competent authority may order the manager or staff be suspended for a certain period of time or order the insurance business to revoke the registration of the insurance salesman.
(9) To add that the competent authority may designate an institution to conduct the data processing and exchange business of the insurance business's underwriting, claims, and condition changes. The scope of the information allowed to be collected, processed or utilized by the designated institution is provided.
Reported by: David Tsai / Aaron Lai
14. Radio and Television Act
On 17 December 2018, the Executive Yuan passed the draft amendments to the Radio and Television Act. We summarize it below：
(1) The television enterprises or radio enterprises specified by the competent authority shall implement self-discipline mechanism. The news reports which violate fact-finding principles and jeopardize public interests shall be subject to the investigation by the self-discipline mechanism before being forwarded to the competent authority for review.
(2) Punishments against the violators of the above requirement are included.
Reported by: Kangshen Liu
Act Governing Food Safety and Sanitation
15. Draft Amendment to the Act Governing Food Safety and Sanitation
The Legal Affairs Committee, Executive Yuan announced the draft amendment to the Act Governing Food Safety and Sanitation, which was submitted to the Legislative Yuan on 17 December 2018. The draft adds Article 46-1 to deter false news. It provides that anyone spreading rumors or untrue messages about food safety, thus causing damage to the public or other people shall be subject to imprisonment for no more than three (3) years, detention or a fine no more than NTD 1 million.
Reported by: Kangshen Liu / Chenchi Wang
Statute for Industrial Innovation
16. Draft Amendment to Article 10-1 of Statute of Industrial Innovation
On 20 December 2018, the Executive Yuan passed the draft amendment to Article 10-1 of the Statute of Industrial Innovation, which provides that a company or a limited partnership may get tax credit to deduct tax payable if it invests in smart machinery and relevant hardware, software, technology or technical service related to the fifth generation mobile network.
Reported by: Kangshen Liu / Paul Hsu
17. Amendment to Urban Renewal Act
On 28 December 2018, the Legislative Yuan passed three readings of the amendment to the Urban Renewal Act. We summarize the amendments below.
(1) The Act specifies additional building bulk as award and expands the scope to enjoy tax benefits.
(2) The Act simplifies the process of urban renewal if all relevant residents agree on the urban renewal plans.
(3) The competent authority may soon designate dangerous buildings as renewal area.
(4) The Act adds a new chapter empowering the government to drive urban renewal plans.
Reported by: Kangshen Liu / Albert Chia
18. Shareholders Having No Voting Right May Exercise the Calling Right of A Special Meeting.
On 26 November 2018, the Ministry of Economic Affair (MOEA) issued a ruling that the right to call a special meeting under Articles 173 and 173-1 of the Company Act is also applicable to shareholders without a voting right. That is, share without a voting right may also be counted for the purpose of exercising the right to call a shareholders’ meeting. However, according to Article 180 of the Company Act, the shares held without a voting right shall not be counted in the total number of issued shares for the resolution in the shareholders’ meeting.
Reported by: Mike Lu / Ester Liu
19. Draft Amendments to Patent Act
On 27 December 2018, the Executive Yuan passed the draft amendments to the Patent Act (Act), the key points of which includes:
(1) Divisional Applications
The current Act allows for a divisional application for inventions be filed within thirty (30) days after the date on which an approval decision for the original patent application in the first examination stage is served. The Act proposes to relax the requirements to provide that a divisional application may be filed within three (3) months after the date on which an approval decision in either the first examination stage or the reexamination stage for the original patent application; and that the same rules and time limits for filing a divisional application for inventions shall also apply to patent applications of utility models and designs.
(2) Invalidation procedures
The current Act provides that a requester of invalidation action may submit invalidation reasons or evidence within one (1) month after the date of filing the said action. The Act proposes to extend the time limit from one (1) month to three (3) months and on the other hand restrict that the reasons or evidence submitted after the time limit shall not be taken into consideration. The Act also proposes to specify the period of time during which the patentee may file a request for post-grant amendments.
(3) Post-grant amendments of utility model patent
The Act proposes to specify the circumstances under which a request for post-grant amendments of utility model patent can be filed including those where an invalidation action or a technical evaluation report on said utility model patent is requested and still under examination, or an litigation case is involved, and provide that the specific patent agent shall conduct substantive examination on such post-grant amendments instead of formality examination under the current practice.
(4) Term of protection for design patents
The term of protection for design patents is to be extended from the current 12 years to 15 years.
(5) Preservation of patent files
In order to solve the problem of file storage space, the Act proposes to change the current provisions of permanently keeping patent files to be only applicable to those with preservation value; for others, 30 years or less for storage.
Reported by: Jolene Wang / Linda Cheng
20. Amendments to Patent Examination Guidelines
The MOEA announced the amendments to the Patent Examination Guidelines, Part II, Chapter 14, Biology-Related Inventions on 7 December 2018 and the amendments to the Patent Examination Guidelines, Part II, Chapter 4, Unity of Invention on 17 December 2018, respectively, both of which took effective as of 1 January 2019.
Reported by: Jolene Wang / Linda Cheng