Changes in Law and Regulations

Particulars on Employee Investment Accounts Promulgated

Lowering Of Withholding Tax Rate For Foreign Investors To 20%

Tax Collection Act Amended in Favor of Tax Payers

Administrative Litigation Code Amended To Facilitate Litigation By General Public

SITEs Permitted To Invest In Listed Securities In China

The FSC Promulgated The Cap For Mainland Investors Investing In Taiwan Securities

Change of Final Users Of Imported Strategic Hi-Tech Products Disapproved

Restriction On The Facility Amount Relaxed For M&A Transaction

Amendments of the Civil Code on Rights In Rem

Provision On Death and Funeral Expense Benefits For Minors Under Age 14 Removed

Model Policy Provisions of Traditional Life Insurance Proposed

The Amendments to Copyright Act and Copyright Intermediary Organization Act Promulgated

Legal News and Case Development

MOEA De-registered Far East Group’s Capital Increase Registration in Pacific Lutong Co., Ltd.

Government May Refuse To Accept Substitute Supplier Which Merges Company on Purchasing Blacklist

Commentary

Impact of Recent Amendments Of The “Regulations Regarding Tender Offers of Securities of Publicly Issued Companies” On Management Buy Out (“MBO”)

Changes in Law and Regulations

Recent Firm Activities

Particulars on Employee Investment Accounts Promulgated – On 13 January 2010, the Financial Supervisory Commission (“FSC”) issued a regulation governing the registration of employee investment accounts by foreign issuers with shares listed on Taiwan Stock Exchange (or OTC) and emerging stock companies under the "Regulations Governing the Offering and Issuance of Securities by Foreign Securities Issuers".  The important regulation on employee investment accounts include: (1) Registration of a collective employee investment account with the Taiwan Stock Exchange by an Offshore Foreign Institutional Investor.  (2) An investment account shall comply with the following: (a) No securities transaction is allowed except for sale of shares obtained by foreign employees in other countries exercising their stock option rights and through assignment and distribution; (b) Upon becoming shareholders, the employees registered in the investment account shall authorize and assign a domestic proxy to exercise their voting power, and to exercise such power pursuant to the Custodian Agreement; (c) The agreement shall expressively provide the rights and obligations of both parties; (d) If no collective employee investment account is set up as mentioned above, shares shall be disposed of pursuant to the "Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals" and each individual employee shall register an investment account as an offshore foreign person; and (e) Employees referred to under the Regulation do not include shareholders with more than 10% of shareholding percentage.  Furthermore, pursuant to the "Regulations Governing Investment in Securities and Futures in Taiwan by Chinese Investors", emerging stock companies may not transfer shares to Chinese employees. (Tsz-Jeng Lin)

Lowering Of Withholding Tax Rate For Foreign Investors To 20% – According to the amended "Schedule of Withholding Rates　for Various Incomes" by the Ministry of Finance (“MOF”), starting from 1 January 2010, withholding tax rate on net dividends and earnings received by individuals not residing in Taiwan, profit seeking enterprises headquartered outside of Taiwan, Chinese who do not reside in Taiwan for more than 183 days during the taxable year and legal entities, organizations or other institutions from China and the companies invested by them in any third country, whether or not the investment is approved, is reduced to 20%. (Eugenia Chuang)

Tax Collection Act Amended in Favor of Tax Payers – On 6 January 2010, the President promulgated the amendment to the Tax Collection Act. The addition of Chapter 1-1 on “Protection of Taxpayer’s Rights” is to expressively provide that confessions inconsistent with the truth that are purposely obtained by the tax authorities with inappropriate measures may not serve as evidence of taxation or punishment assessment. In addition, profit-seeking enterprises who fail to perform the obligation of obtaining, delivering and keeping certificates may be punished with a fine in the amount of 5% of the total amount of the relevant certificates as verified and determined, but such fine shall not exceeding NT$ 1 million in total. (Trinity Lin) 

Administrative Litigation Code Amended To Facilitate Litigation By General Public – On 13 January 2010, the President promulgated the amendment to the Administrative Litigation Code. The main amendments are: (1) Actions resulted from insurance relationship under public law are governed by the administrative court where the insured or the beneficiary resides, the insured works, or the principal business location of the insurance applicant to facilitate filing with an administrative court near one's residence or business operation. (2) The plaintiff may deliver the filing documents by fax or electronic mail to reduce expenses on personal delivery or mailing process.  (3) For complicated actions whereby damage amount is hard to determine, the court may determine the amount in discretion with all conditions considered if the parties have proved that damages did occur yet failed to substantiate the amount or have significant difficulty in proving such amount.  In addition, considering the higher level of living standard in Taiwan, the amount of claim that applies to summary proceedings is increased from under NT$200,000 to under NT$400,000.  Simple cases involve smaller amount of claim may close within a shorter period of time. (Maggie Lin)

SITEs Permitted To Invest In Listed Securities In China – On 29 January 2010, the FSC promulgated the "Principles Governing SITEs Applying to the Competent Authorities in China as QDII to Invest in Listed Securities in China".  Under the Principles, Taiwanese SITEs may apply to the competent authorities in China to become QDII, provided however, they shall file with the FSC for recordation within 5 business days of obtaining the QDII approval, changes in conditions of approval, withdrawal or revocation. The SITEs shall also file with the Securities Investment Trust and Consulting Association the position and amount (in RMB) of the listed securities invested by its investment trust fund and full-discretionary investment on a monthly basis. (Maggie Lin)

The FSC Promulgated The Cap For Mainland Investors Investing In Taiwan Securities – On 15 January 2010, the FSC released an administrative order stating that the QDII approved by the Chinese government may invest in securities and futures in Taiwan but the invested amount may not exceed USD 500 million.  The custodian banks of QDII are required to apply to the Taiwan Stock Exchange for quotas prior to the remittance and the quota for each QDII is caped at USD 80 million.  The caps on shareholdings for specific industries are as follows: (1) Natural gas business and the MOEA directly invested enterprises: any single Chinese investor’s shareholding and the aggregate shareholding by all Chinese investors shall not exceed 10%. (2) Marine business: any single Chinese investor’s shareholding and the aggregate shareholding by all Chinese investors shall not exceed 8%. (3) Financial services industry: any single Chinese investor’s shareholding shall not exceed 5% and the aggregate shareholding by all Chinese investors shall not exceed 10%. (4) Civil aviation, air freight forwarders, securities and futures trading/clearing business, security services, real estate development business, construction business and real estate brokerage business, radio and television business, radio and television programs provision business and telecom services are prohibited from Chinese investment. (Maggie Lee)

Change of Final Users Of Imported Strategic Hi-Tech Products Disapproved－On 13 January 2010, the President promulgated the amendment to the Foreign Trade Act.  To synchronize with international regulations and to solidify the enforcement of UN regulations on chemical weapons, the amendment provides that, without prior approval, the intended final users of exported/imported strategic high-tech products shall not be altered.  A criminal penalty and administrative sanction may be imposed on violators. (Gisele Chien)

Restriction On The Facility Amount Relaxed For M&A Transaction－ On 28 January 2010, the FSC promulgated the “Particulars Regarding Authorization under Article 33-3 of the Banking Act”.    Article 3 of the Particulars provides that when a company’s total facility amount provided by a bank exceeds the cap set by Article 2 due to the company’s merger, acquisition or spin-off, the bank may, within five years from the date of the merger, acquisition or spin-off, continue to provide loans to the company based on the original facility amount if the competent authority of the industry or the Ministry of Economics Affairs has issued an opinion recognizing that the funding plan meets the need of industry development and the bank has fully assessed the credit risk of the loan.  (Gisele Chien)

Amendments of the Civil Code on Rights In Rem – On 2 February 2010, the President promulgated the amendments of the Chapter of the Taiwan Civil Code on Rights In Rem which will become effective in 6 months.  The major changes are: (1) increasing the value of space by permitting creation of superficies right above and under the ground; (2) creating new type of servitude such as a right of view or light to avoid blockage of views and lights; and (3) amend adverse possession rights to reinforce protection of real property rights by prohibiting adverse possession of registered real property. (Chia-Yu Chang)

Provision on Death and Funeral Expense Benefits For Minors Under Age 14 Removed – On 3 February 2010, the amended Article 107 of the Insurance Act promulgated by the President on 1 February 2010 became effective.  According to the amendments, the original provision on death and funeral benefits for insureds who are minors under age of 14 is removed.  Death benefit for insureds below age 15 will not take effect until the insured reaches the age of 15.  For insured who dies before 15, the insurer shall repay the total premium paid plus interest accrued to the policyholder.  For insured who is mentally impaired or of diminished mental capacity, the funeral expense benefits remain but is reduced from NTD2 million to an amount equal to a half of the funeral expense allowed under the Estate Act, i.e. NTD500,000, as the cap to avoid moral hazard. (Sophia Hsieh)

Model Policy Provisions of Traditional Life Insurance Proposed – According to the draft Model Policy Provisions of Traditional Life Insurance proposed by the Consumer Protection Commission, in addition to the existing practice that applicants may cancel policy within 10 days after receipt of the policy documents, an additional 3 days will be offered for the applicants to review policy provisions before signing the application forms.  The FSC is considering the proposal and will decide corresponding measures for formal implementation. (Sophia Hsieh)

Amendments to Copyright Act and Copyright Intermediary Organization Act Promulgated － On 10 February 2010, the President promulgated the amendment to the Copy right Act and Copyright Intermediary Organization Act.  The highlights of the amendments are as follows: (1) On amendment of Copyright Act, the provisions of criminal penalty do not apply in the following circumstances except for works subject to the management of copyright collective management organizations: (a) Exploitation of digitized karaoke machines or jukeboxes which contain licensed duplication(s) of music works for public performance; (b) Re-broadcasting works of an original broadcast; (c) Communicating the sounds or images of an original broadcast to the public with loudspeaker or other equipment; (d) Communicating the works to the public through public broadcasting or simultaneous public transmission of advertisement by a broadcaster, within which such works have been reproduced under authorization.  (2) On amendment of Copyright Intermediary Organization Act, (a) The title of the Act has been changed from “Copyright Intermediary Organization Act” to “Copyright Collective Management Organization Act”; (b) The new system of “joint tariff” and “one-stop shop”: with respect to specified types of exploitation and relevant CMOs designated by the TIPO, multiple CMOs should set up a “joint tariff” and designate one CMO to collect royalty from users. The amendments will become effective two years after promulgation. (Sean Fan / Kevin Wei)

Tsar & Tsai successfully assisted Powerchip Semiconductor Corp. (“PSC”) to reach an agreement with approximately 90% of holders of PSC’s overseas convertible bonds, which were due on February 2, 2010, to convert the bonds into part shares and part cash thus completing the debt restructuring plan in the amount of approximately US$130 million.  Tsar & Tsai also assisted PSC to reach an agreement with the Gre Tai Securities Market to continue the trading of PSC shares despite that not all bond holders agreed to accept the debt restructuring plan. (Yvonne Liu / Jackie Lin)

On 25 March 2010, Tsar & Tsai will hold a Forum on Company Act in cooperation with the National Chiao-tung University Institute of Technology Law.  Jennifer Lin, Managing Partner of Tsar & Tsai, will give a key-note speech for the opening.  Josh Fan, Partner of Tsar & Tsai, will deliver a speech entitled Shadow Under the Candle Light – Preliminary Discussion of Economic Crimes.  Dr. Richard Chuang, Counsellor of Tsar & Tsai, will talk on Corporate Governance in Taiwan and Important Challenges.  Judie Sun, an Integrated Partner of Tsar & Tsai, will speak on the Myth and the Path on Criminal Aspects of Insider Trading Cases.

On 3 to 4 March 2010, Ms. Eugenia Chuang participated in the Asia M&A Forum 2010 held by IFLR in Hong Kong.

MOEA De-registered Far East Group’s Capital Increase Registration in Pacific Lutong Co., Ltd. – Tsar & Tsai successfully assisted Pacific Construction Group in obtaining a winning judgment against an employee of Far East Group for forgery of shareholder meeting minutes and board meeting minutes of Pacific Lutong Co., Ltd.  Based on the judgment, the Ministry of Economic Affairs on 3 February 2010 canceled Pacific Lutong Co., Ltd.’s registration of NT$4 billion capital increase injected by Far East Group. (Connie Huang / Jack Tung)

Government May Refuse To Accept Substitute Supplier Which Merges Company on Purchasing Blacklist – According to the Regulation on Joint Bidding, if one of the joint suppliers of a government procurement contract is bankrupt or suffers from other hardship which caused such joint supplier not being able to perform the government procurement contract, other suppliers of the team may, after obtaining the procuring government entity’s approval, substitute a supplier for the performance of the government procurement contract.  The procuring government entity shall not refuse the proposed substitute supplier without cause.  On 25 December 2009, the Public Construction Commission of the Executive Yuan, however, issued an administrative interpretation stating that a government purchasing entity may refuse to accept the substitute supplier if such substitute supplier has previously merged another company that is on the black list for government procurement projects. (Tsz-Jeng Lin)

COMMENTARY  -- Impact of Recent Amendments Of The “Regulations Regarding Tender Offers of Securities of Publicly Issued Companies” On Management Buy Out (“MBO”)

By Matt Liu

Tsar & Tsai Law Firm

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