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Tsar & Tsai Lex News is aimed at providing the readers and clients

  1. important recent changes in the laws and regulations in Taiwan,
  2. practical views and interpretations on the laws,
  3. important legal news and case developments, and
  4. information on recent activities of Tsar & Tsai Law Firm. If you have any comments or questions, please feel free to contact us (Tel: 886-2-2781-4111; e-mail: Law@TsarTsai.com.tw ).

Editors: Jennifer Lin / Howard Chen

The Ministry of Labor amended the “Enforcement Rules of the Labor Standards Act,” for requirements on non-competition agreements between employers and employees. — To reflect the newly-amended legal requirements on non-competition agreements between employers and employees under the Labor Standards Act, the Ministry of Labor announced the draft enforcement rules on February 4, 2016. Major provisions include: (1) non-competition agreements shall be in writing and shall specify the time limit, the geographic area, the potential employers to which the non-competition agreement applies, and a reasonable compensation for entering into the non-competition agreement; (2) the geographic area specified by the non-competition agreement shall be limited to the geographic area in which the employer party to the non-competition agreement has real business activity; the potential employers to which the non-competition agreement applies shall be limited to those entities conducting identical or similar businesses and having a competitive relationship with the employer party; and (3) the compensation for entering into the non-competition agreement shall be paid in a lump sum or in monthly installments. As to whether the compensation is reasonable, the totality of the circumstances should be considered, including whether the monthly compensation is higher than one-half of the average monthly wage prior to leaving employment, whether the compensation is enough to meet the living needs during the period of non-competition or to compensate for the employee’s loss. (Karl Chang)

The amendments to the Radio and Television Act, the Satellite Broadcasting Act and the Cable Radio and Television Act provide regulation on product placement and shopping channels, and seek to facilitate the establishment of digitalization by cable TV operators. — On January 6, 2016, the President announced amendments to the Radio and Television Act, the Satellite Broadcasting Act and the Cable Radio and Television Act. Highlights include amendments to the permit application and renewal process and concerning program content control, while seeking to regulate product placement and shopping channels. For example, there shall be no product placement in news and children’s programs, nor shall election candidates put product placement in the media. If a product placement is put into a program, there shall be clear disclosure, both before and after the program, of information relating to the person who placed the products. In addition, pursuant to the amended Cable Radio and Television Act, system operators may operate in each other’s territory and provide the service of digital convergence. In addition, system operators are required within time limits to provide services and local channels using digital technology. (Leonard Chen)

The “Statute of Adjustment Assistance in Response to Trade Liberalization” was Enacted to Cope with Adverse Impact of Trade Liberalization — On December 15, 2015 the Legislative Yuan passed the Statute of Adjustment Assistance in Response to Trade Liberalization, aiming to cope with disruptive effects of trade liberalization on industries arising from free trade agreements that may be concluded by the government in the near future. The gist of the Statute includes: (1) the Statute is applicable to the agricultural, industrial and services industries; (2) the government will proactively identify and provide adjustment assistance to those domestic demand-oriented industries and industries with weaker competitiveness; (3) enterprises and workers adversely impacted as a result of market liberalization are eligible for adjustment assistance and grants administered by the Ministry of Economic Affairs; (4) a fund of NT$10 billion (US$302.79 million) for the adjustment assistance will be allocated over a 10-year period. The Act has been in force since December 30, 2015. (Cherry Chen)

According to the newly-amended “Act for Development of Small and Medium Enterprises”, small and medium enterprises that employ new employees under 24 years old , or increase the salary of its current employees, shall be entitled to certain tax benefits. -The “Act for Development of Small and Medium Enterprises” was amended on January 6, 2016. Major amendments include: (1) under certain conditions, where a small and medium enterprise employs new employees under 24 years old with ROC nationality, such enterprise may deduct up to 150% of the company’s total expenditure on the salary paid to the above-mentioned employees against its business income tax payable for that year; (2) under certain conditions, where a small and medium enterprise increases the salary of its current employees with ROC nationality, other than increases required by applicable law, such enterprise may deduct up to 130% of the company’s total expenditure on the salary increase against its business income tax payable for that year. (Elvin Peng)

According to the newly-amended “Statute for Industrial Innovation”, a company may apply for deduction or tax deferral for expenditure on R&D, for its use of technology as investment capital, and for employees’ share-based rewards. - The “Statute for Industrial Innovation” was amended on December 30, 2015. Major amendments include: (1) a company may choose to either (a) deduct up to 10% of the company’s total expenditure on R&D against its business income tax payable for the next three years from the year of the R&D; or (b) deduct up to 200% of the company’s expenditure on R&D, capped at the total revenues received for transferring or licensing IP rights, against its business income tax payable for that year; (2) individuals or companies who transfer or license self-developed IP rights to a listed company, to companies whose stocks are traded on the OTC market or the emerging market, as consideration of investment may defer the total tax payable to the fifth year from the year following the year of investment; and (3) employees receiving share-based rewards may defer the tax payable with the total amount up to NT$ 5 million to the fifth year from the year following the year of payment. (Elvin Peng)

The “Personal Information Protection Act” was amended, enlarging the scope of personal information deemed to be sensitive, and eliminating criminal liability for violations of the Act without a profit motive — On December 15, 2015, the Legislative Yuan amended the “Personal Information Protection Act”: (1) specifying that medical records are deemed sensitive information; (2) adding exceptions whereby sensitive information may be collected, disposed of and used; (3) changing some of the provisions requiring “written consent” to “consent”, for the collection and disposition of personal information; (4) eliminating criminal liability for violations of the Act without a profit motive, with such violations still subject to civil claims and administrative penalties; and (5) extending the time limit for those who, before the coming into force of these amendments, indirectly obtained personal information of others, to notify the owner of such personal information. The amendments above should come into force on March 15, 2016. (Eugenia Chuang)

The FSC amended the “Regulations Governing Investment of Investment-Linked Insurance”, loosening restrictions on insurance payment of foreign-currency-denominated investment-linked insurance to offset insurance premium. The FSC amended the “Regulations Governing Investment of Investment-Linked Insurance” on Jan. 7, 2016. The survival benefit payments of foreign-currency-denominated investment-linked insurance can now be used to offset the premium payment of other foreign-currency-denominated investment-linked insurance policy by mutual agreement between the insurer and the policyholder, if: (a) the offset date and the survival benefit payment date are the same; (b) the currency for the survival benefit payment and the insurance premium payment are the same; and (c) the beneficiary and the policyholder who would like to offset the insurance premium payment are the same person. (Scarlett Tang)

The FSC issued a ruling stating that a share exchange pursuant to the Enterprise Mergers and Acquisitions Act is exempt from rules requiring Mandatory Public Tender Offers. — On January 18, 2016, the Financial Supervisory Commission (FSC) issued a ruling stating that a share exchange pursuant to the Enterprise Mergers and Acquisitions Act is exempt from rules requiring Mandatory Public Tender Offers as stipulated by the FSC.

The Ministry of Economic Affairs (MOEA) issued a ruling stating that in the case of a new spin-off or share exchange, the newly incorporated corporation shall not use cash or other assets as consideration. — On January 4, 2016, the Ministry of Economic Affairs (MOEA) issued a ruling stating that, according to the Enterprise Mergers and Acquisitions Act, a company is allowed to use shares, cash or other assets as consideration in exchange for another company’s shares or to spin off the company. However, if the newly incorporated company uses cash or other assets as consideration, the newly incorporated company will be without shareholders. Consequently, the newly incorporated company shall not use cash or other assets as the sole consideration in the case of share exchange or spin-off. (Alex Cheng)

The FSC announced the “Regulations Governing the Establishment of Special Committee for Merger by Public Companies and Relevant Matters”. — On January 4, 2016, the FSC announced the “Regulations Governing the Establishment of Special Committee for Merger by Public Companies and Relevant Matters”. Highlights include: (1) a public company shall establish bylaws for the organization of a special committee; (2) where a public company has already established an audit committee, the functions of the special committee shall be performed by the audit committee; (3) the special committee shall be composed of independent directors (if any) or members selected by the board of directors. All members of the special committee shall have the requisite professional qualifications and independence; (4) the special committee shall appoint independent experts to provide assistance and professional consultation; (5) a resolution of the special committee shall be approved by one-half or more of all the special committee members. All members shall be present in person and no proxy vote is allowed. Members attending the meeting shall clearly state whether he/she approves or objects to the proposed resolution and no abstention is allowed. The result of the discussion, together with views for or against the resolution, shall be reported to the board of directors; (6) the special committee may invite independent experts, managers from relevant departments, internal auditors, CPAs, attorneys or other personnel to attend the meeting to provide relevant information if so required; and (7) the company shall record the entirety of the special committee’s proceedings on video or in audio format, and shall keep such recordings for no less than 5 years. (Alex Cheng)

The FSC announced an amendment extending the time for a target company and its review committee to respond to a hostile takeover offer from 7 days to 10 days, and increasing the tender offer period to not less than 20 days. — On December 25, 2015, in cases involving hostile takeovers, the FSC announced that, in order for a target company to properly explain its position to shareholders and to provide recommendations, the target company and its review committee shall have 10 days (increased from 7 days) to respond to a hostile takeover. At the same time, the tender offer period is adjusted to not less than 20 days. (Alex Cheng)

The Supreme Court ruled that the scope of damages shall include recovery of repair costs as well as the loss of market value. -In its judgment on December 11, 2015, the Supreme Court held that since the purpose of damages recovery is to compensate for the loss incurred, the aim is to return the subject matter of damages to the condition before the incident, and any after-the-incident changes in circumstances should be taken into account. Therefore, where an item is damaged, the owner of such item not only may seek to have the item repaired or to claim recovery of repair costs so as to return the condition of the item to its original physical state, but the owner may also claim damages for the lost market value of the item after the repair. (Elvin Peng)

Criminal Forfeiture to be Enforced against Companies Receiving Proceeds of Crime

Albert Liao

Under the old Taiwan Criminal Code, while an offender’s proceeds of crime were required to be forfeited, earnings of a corporate entity generally were not subject to forfeiture since a corporate entity was not regarded as an offender under the Criminal Code (even though it was possible for a corporate entity to receive proceeds of a crime). In 2015, prosecutors petitioned the court to confiscate proceeds of crime amounting to NT$1.85 billion received by Tatong Oil Ltd., an oil manufacturer whose chairman was prosecuted for violation of the Food Safety Act. The court, however, ruled that Tatong Oil Ltd. was not the offender and its property could not be forfeited. The court’s ruling was much criticized, and the public began to question that the Criminal Code seemingly encouraged offenders to shed their assets or to transfer their property to third parties, offering a way for offenders to maintain possession of the proceeds of their criminal conduct. Under such pressure, the government started to review the shortcomings of the old Criminal Code, which ultimately led to the amendment of the forfeiture-related provisions.

The amendment of the Criminal Code was promulgated on December 30, 2015 and will come into effect on July 1, 2016. Among the amended provisions, the one that has received the most attention is the expansion of the scope of the forfeiture of crime proceeds to include offence-related property held by third parties, including proceeds of crime, any property obtained in exchange therefor, or as the fruit thereof. However, to prevent the scope of forfeiture from becoming too broad, the amendment provides that only the following three types of proceeds of crime are subject to forfeiture: (1) those received by third parties who are aware of the crime; (1) those received by third parties with inadequate or no consideration; and (3) those received by third parties as a result of the offender committing the offence for such third parties. In addition, where legal or factual issues prevent the recovery of criminal proceeds from the offender, courts may now render an unilateral order of forfeiture against proceeds of crime in the possession of third parties, thus resolving the judicial system’s inability to recover the proceeds of crime once the offender flees.

The amendment carries significant implications for corporate entities. Under the old Criminal Code, only the offender’s proceeds of criminal conduct are subject to forfeiture. Tatong Oil Ltd., mentioned above, was not prosecuted for insider trading, and its profits generated from selling oil products manufactured in violation of the Food Safety Act would in principle not have been regarded as crime proceeds subject to forfeiture. However, after expanding the scope of forfeiture to include offence-related property held by third parties, the earnings of a corporate entity may now be subject to forfeiture.

The new Criminal Code provides that a forfeiture order shall be subject to the statutes in effect at the time of ruling. As such, the new Criminal Code shall apply to rulings or judgments rendered after July 1, 2016. Criminal cases currently pending before the courts may be affected by the amendment of the Criminal Code. In addition to the case described above, if the members of a company commit criminal offences under the Securities Exchange Act, the Patent Act, the Trademark Act or other criminal statutes, and the company consequently generate earnings, the company’s assets may be subject to forfeiture and thus suffer considerable damage.

Recognitions

The firm was selected by the 2016 Corporate Intl Magazine as the “Complex Business Disputes Law Firm of the Year in Taiwan”.


The firm was awarded the “Asian-MENA Counsel Deals of the Year 2015”, for its work in the M&A matter between Johnson Controls and Hitachi Global Air Conditioning.


 

Successful Transactions

Tsar & Tsai acted as lead legal counsel of Polaris Group (Cayman) (“F-PG”, TPEx Emerging Stock Code: 5280), a multinational biopharmaceutical drug company, specializing in the research and development of protein drugs to treat cancer and other debilitating diseases in humans, to successfully complete its initial public offering in Taiwan and listing of its stocks for trading over the Emerging Stock Board of Taipei Exchange on February 15, 2016. (Janice Lin / Luc Chen).


 

Seminars

Randy Tsai will attend the “2nd IBA Asia-based International Financial Law Conference 2016” on March 10-11, 2016, held by the ABA in Singapore.


On March 16-18, 2016, Yen-Ling Liu will attend the “ITMA Spring Conference 2016”, held by the ITMA in the U.K.


Yen-Ling Liu will attend the “GSK-External Counsel Forum” on March 16, 2016, held by GSK in the U.K.


On April 12, 2016, Eugenia Chuang will attend the “IFLR Asia Women in Business Law Forum 2016: Promoting the talent pipeline”, held by the IFLR in Hong Kong.


Edgar Chen, Yvonne Liu, Vincent Wang, and H.P. Lo will attend the “IPBA 26th Annual Meeting & Conference” on April 13-16, 2016, held by the IPBA in Kuala Lumpur.


Joyce Ho and Yen-Ling Liu will attend the “INTA 2016 Annual Meeting” on May 21, 2016, held by the INTA in Orlando.