The contents of Tsar & Tsai Lex News are not legal opinions and shall not be taken as legal advice on any particular issue or case. If the reader has any suggestions or questions, please do not hesitate to contact us.

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: Edgar Chen / George Shih

The Financial Supervisory Commission (“FSC”) promulgated the “Regulations for Reporting Acquisition of Shares pursuant to Paragraph 1 of Article 43-1 of Securities and Exchange Act” (the “Regulations”).  The Regulations shall also be applicable mutatis mutandis to the circumstances prescribed in Paragraph 14 of Article 27 of Business Mergers and Acquisitions Act.

On October 7, 2019, the FSC promulgated the Regulations to replace the “Directions for Filing Reports on Acquisition of Shares in accordance with Paragraph 1 of Article 43-1 of the Securities and Exchange Act.”   According to the Regulations, any person who individually or jointly acquires more that ten percent of the total issued equity shares of a publicly traded company shall file a report with the competent authority and make a public announcement in that regard, and send a copy of the report to the company whose shares has been acquired and to the relevant entities.  The Regulations also provides that: (1) reporting period: the report shall be filed within 10 days from the time of the acquisition of the shares; (2) manners of public announcement: in the event the acquirer of the shares is a publicly traded company, it shall transmit the information required to be reported through the Market Observation Post System (“MOPS”) within 10 days from the time of acquisition; and if the acquirer is not a publicly traded company, it shall serve the information required to be reported to the company whose shares has been acquired within 8 days from the time of acquisition and the company whose shares has been acquired shall transmit the information required to be reported through the MOPS within 2 days from being so served.  

On October 9, 2019, the FSC issued a letter interpretation further indicating that the aforementioned new reporting requirements shall be applicable mutatis mutandis to the circumstances prescribed in Paragraph 14 of Article 27 of Business Mergers and Acquisitions Act. (Michael Hsu, Esq.)

The FSC promulgated the “Guidelines for Securities and Futures Industry to Apply for Trial Business Operation.” (the “Guidelines”)

For encouraging innovation of the securities and futures industry in providing innovative financial products and services to enhance compatibility and consumers rights, the FSC promulgated the Guidelines on October 3, 2019.  According to the Guidelines, the trial business itmes that the securities and futures industry may apply for include the following: (1) the business items which a securities or futures business may operate under the current laws and regulations; (2) the trial business items of which the transaction or operation models have not been applied for by another securities or futures business or have been applied for but not yet officially operated; (3) the trial business items that are the same as the innovation experiment matters already approved under the Financial Technology Development and Innovative Experimentation Act, namely, if a financial business item is permitted by the FSC to enter innovative experimentation, other securities or futures businesses may still apply for operating such items as trial business provided that it is not prohibited by any applicable laws or regulations; (4) no application for trial business shall be made for items prohibited by laws or regulations, and as to those matter, application shall be made pursuant to Article 25 of the Financial Technology Development and Innovative Experimentation Act, and the trial business item shall be operated only after acquiring permissions from the FSC and other relevant authorities for exemption from the prohibition of laws or regulations. (Yijia Chao)

The Minister of Economic Affairs (“MOEA”) amended Article 2 of the Regulations Governing the Application for Business Registration.

This amendment requires that the applicant preparing the application documents for business registration in the electroic form shall prefix with electronic signature recognized by the central competent authority of the competent authority where the applicant’s business situates, and transmit the electronic documents via the software, format, type and manner designated by the competent authorities. (Alex Yin, Esq.)

The FSC amended the “Regulations Governing Internal Operating Systems and Procedures for the Outsourcing of Financial Institution Operation” (the “Regulations”)

The FSC amended the Regulations on September 30, 2019, adding regulations regarding cloud service outsourcing for banks, and permitting a financial institution to outsource debt collection operations to a wholely owned asset management subsidiary.

The amendments concerning the cloud service outsourcing include: (1) Supervision of cloud service outsourcing: financial institutions are required to evaluate the impacts of outsourcing of operation.  If the impact of outsourcing an operation is martial or if an operation is outsourced to an overseas contractor, an application for “review and approval” by the authority is required .  If the impact of outsourcing is not deemed martial, financial institutions need merely to report the outsourcing of operation to the authority with simplified forms for future reference.  (2) Financial institutions should adopt appropriate measures to disperse the outsourced tasks and avoid outsourcing multiple operations to a single contractor based upon their respective business needs and risk tolerance capabilities.  (3) In principle, customer information should be stored in Taiwan.  If the customer information is to be stored in an overseas location, the standards of information protection under the laws and regulations of such location shall not be lower than the standards in Taiwan.  Other than those have been approved, backup data for critical customer information must be kept domestically and an emergency response plan must be established.  (4) When a foreign bank in Taiwan engages its parent organization abroad to outsource operation to the private cloud service built by the parent organization, namely no third party contractor is involved, a simplified  reporting procedure to the authority may be used for future reference or rectification. (5) Financial institutions bear the final responsibility to supervise cloud service contractors, and therefore, must ensure that they as well as the relevant authorities obtain the right to access the outsourcing operation information and the power of onsite investigation. (Yijia Chao)

The FSC revised the standards and principles for determining the “be used immediately and from which revenue may be derived” requirements regarding real estate investments by insurance enterprise.

The FSC issued a letter interpretation (Ref. No.: Jin-Guan-Bao-Cai–Zhi No. 10804945921) on August 23, 2019, revising the standards and principles for determining the “be used immediately and from which revenue may be derived” requirement set forth in Paragraph 1 of Article 146-2 of the Insurance Act concerning the real estate investments by insurance enterprise.  The FSC indicated in said letter that “the real estates that meet the “be used immediately and from which revenue may be derived” requirement shall be those real estates which have been developed to a usable stage and have already been used, and from which a reasonable rate of investment return may be generated”.  Thus, a vacant land used as a parking lot or for rental advertisement purpose, or a lot housing a construction without a lawfully assigned street address, is not deemed to have met the requirement of “be used immediately and from which revenue may be derived”.  As for the “reasonable rate of investment return”, the FSC added two exceptions to the existing standards regarding real estate leasing ratio and annual rate of return, to wit: (1) the minimum rate of annual investment return from the real estates needed by long term care industry may be based upon the basic interest rate; (2) the minimum rate of annual investment return from the real estates where more than 50% area of holding is leased to seniors over 65 years of age may be based upon the basic interest rate.  (Linda Huang)

The Supreme Court held that the remuneration set by a publicly traded company for its executive or managerial officers without an evaluation by its remuneration committee is not necessarily invalid.

The Supreme Court in a recent decision (Case Ref. 108-Tai-Shang-Zhi-No.538) held that Article 14-6 of the Securities and Exchange Act was an enforcement provision rather than a validity provision, and should not turn on the applicability of Article 71 of the Civil Code.  As a result, when a company whose stock is listed on the stock exchange or traded over-the-counter violates the provision by bypassing the remuneration committee when making remuneration decisions for its directors, supervisors, or managerial officers, the validity of such remuneration decisions would not necessarily be invalid, but that the competent authority could decide at its discretion whether an administrative action should be made in the regard. (Alex Yin, Esq.)

In a contributory negligence situation, courts may reduce or waive the damages without an applications or assertion by the party.

The Supreme Court in a recent decision (Case Ref. 108-Tai-Shang-Zhi-No.1479) held that the court could reduce or waive the damages if the injured party negligently contributed in causing or aggravating the injury.  The purpose of which is to find a balance of equity and fairness between the perpetrator and the victim.  Courts may reduce or waive the damages against the defendant by authority, without the applications or assertion by the defense. (Alex Yin, Esq.)

The Minister of Justice (“MOJ”) issued a letter interpretation regarding the evidence-perpetuating measures implemented by prosecutors or police when conducting search and seizure.

The MOJ indicated in its letter interpretation (Fa-Jian-Tze No. 10804536830) dated September 23, 2019 that the evidence perpetuation measures during search and seizure prescribed in Article 144 of the Code of Criminal Procedure should be interpreted to include all necessary measures for perpetuating evidence.  Therefore, these measures should also include reasonable restriction or prohibition of audio-recording, video-recording, using communications equipment with transmission function or publicly transmitting audio-visual data by the defendants, suspects, victims, witnesses or other people at the scene until the end of the search and seizure process. (Alex Yin, Esq.)

The FSC issued a letter interpretation regarding Paragraph 2 of Article 30 of the Financial Holding Company Act.

On August 27, 2019, the FSC issued a letter interpretation to indicate that Paragraph 2 of Article 30 of the Financial Holding Company Act should be applicable to the wholly owned subsidiaries of a subsidiary wholly owned by a financial holding company. (Michael Hsu, Esq.)

On August 21, 2019, the Securities Investment Trust & Consulting Association (SITCA) issued a letter regarding the restrictions on Securities Investment Trust Enterprises (SITEs) and Securities Investment Consulting Enterprises (SICEs).

SITCA’s letter stated that several articles in the newly amended Company Act should not be applicable to SITEs and SICEs.  First, they shall not issue certain types of preferred stock, e.g., the golden share.  Second, they shall not hold the shareholders’ meeting via video conference.  Third, the directors shall not exercise their voting rights by written consents.  Fourth, a notice of calling a meeting of the board of directors shall be given to each director no less than 7 days prior to the scheduled meeting date.  Fifth, the allowable total amount of private placement of convertible bonds and bonds with warrants shall not exceed the balance of the company’s total assets in hands less total liabilities.  Sixth, the board of directors shall comprise at least 3 directors. Seventh, they shall issue the stocks at a price not less than the par value thereof. (Michael Hsu, Esq.)

On August 23, 2019, the Ministry of Finance (“MOF”) issued a letter interpretation regarding Subparagraph 8, Paragraph 1 of Article 17 of the Estate and Gift Tax Act.

The MOF indicated that, the surviving spouse is the taxpayer for the decedent’s income earned during the year of death and the previous years. The income tax attributed to the decedent and paid after the decedent’s death by the surviving spouse may be deducted from the gross estate pursuant to Subparagraph 8, Paragraph 1 of Article 17 of the Estate and Gift Tax Act. (Michael Hsu, Esq.)

On August 23, 2019, the Ministry of Economic Affairs (“MOEA”) issued a letter interpretation regarding the provisions of quorum and electoral threshold in Articles of Incorporation (“AOI”).

The MOEA’s interpretation indicates that, for the purpose of keeping the legal stability, the quorum or electoral threshold set forth in a company’s AOI for shareholders or board resolutions which is higer than the required quorum or electroral threshold prescribed in the Company Act may remain applicable after May 8, 2019 if such quorum or electoral threshold was set forth in the AOL between February 23, 2011 and May 8, 2019.  For a company who is established or amends its AOI after May 8, 2019, a higher quorum or electoral threshold may be set forth in the AOI only when the Company Act expressly permits such a higher quorum or electoral threshold. (Michael Hsu, Esq.)

On October 2, 2019, the MOEA issued a letter interpretation regarding the issuance of restricted stocks for employees by non-publicly traded companies.

The MOEA’s interpretation stated four points.  First, based upon Paragraph 9 of Article 267 of the Company Act, a non-publicly traded company may issue restricted stocks for its employees.  Second, Paragraph 1 of Article 140 of the Company Act provides that a non-public traded company shall not issue stocks at a price lower than the par value; and since the par value shall not be zero, a non-publicly traded company may not issue no par value restricted stocks for employees .  Third, the subscription price of the restricted stocks for employees shall be the same as the issuance price.   Fourth, pursuant to Paragraph 1 of Article 167 of the Company Act, a non-publicly traded company may not redeem or buy back the restricted stocks for employees, nor may it accept the pledging of restricted stocks for employees as colleteral. (Michael Hsu, Esq.)

The Fair Trade Commission (“FTC”) rejected the proposed merger of Cashbox Partyworld Co. Ltd. and Holiday Co. Ltd.

The FTC rejected the merger application of Cashbox Partyworld Co. Ltd. and Holiday Co. Ltd., indicating that the two companies were the first two major competing enterprises (“the Big Two”) in the KTV/MTV market and the competition between the Big Two in the KTV/MTV market would be eliminated as a result of the proposed merger.  Having considered the public interest factors, including the consumer’s service-choosing capability and the compatibility of other market players, the significant harm to the competitive mechanism of the market, the heightened incentive and ability by the Big Two to increase prices, the inability by the consumers and other competitors to counteract effectively against the proposed merger, and listened to the concerns voiced by upstream record companies, karaoke products agencies, music copyright collective management organizations, and consumer advocacy groups, etc. about the proposed merger, the FTC ruled on August 21, 2019 to reject this merger application. (Alex Yin, Esq.)

Determining the service relationship between food delivery business and its couriers

Hector Chin / Jackie Lin

The food delivery industry expands quickly in Taiwan in 2019.  More and more consumers choose to order meals through the food delivery business, thus creating demands for the couriers.  The service relationship between the food delivery business and the couriers did not attract attention from the general public and the consumers until this October, when two couriers died of accidents on their way of delivering meals.  After the accidents, the labor authority conducts an investigation to review the nature of such service relationship.

On this issue, almost all food delivery businesses share the same position, arguing that couriers are independent contractors, and not employees of the food delivery businesses.  It should be noted that the couriers discussed here do not include the couriers who regularly deliver meals for a single restaurant (e.g., couriers delivering pizza for Domino Pizza).  There is no dispute that those couriers serving a single restaurant are employees of the restaurant.

Based on the “Conclusion of the Special Investigation on the Food Delivery Business” conducted by the Occupational Safety and Health Administration of the Ministry of Labor, the criteria established by the court precedents are applied to analyze the service relationship between food delivery businesses and the couriers: whether such service relationship possess the element of “subordination”.  The substance of “subordination” could be further divided into three sub-categories: personal subordination, economic subordination, and organizational subordination.  In No. 740 Judicial Interpretation rendered by the Constitutional Court concerning the issues of service relationships between insurance solicitors and insurance companies, the Constitutional Court stated that “it shall take into account the direction and supervision relationship with regard to the time, location or specialty of the provision of service under the concept of personal subordination (or called personal character subordination), and the burden of business risk in making the decision.”  Based on this guidance, we could infer that personal subordination is the most important criterion among the three criteria.  Below is a brief explanation on the three sub-categories of subordination:

  1. Personal subordination: meaning whether the service receiver can direct and supervise the way of provision of service by the service provider; whether the service provider has the sole discretion to decide when, where and how to perform the service; and whether the service must be provided personally by the service provider or it could be delegated to and provided by others.

  2. Economic subordination: meaning whether the service provider is operating his own business, or is attaching himself to and making contribution to the service receiver; whether the service provider owns the production equipment; and whether the service provider undertakes the risk of service receiver’s business operation.

  3. Organizational subordination: meaning whether the service provider is integrated into the production system of the service receiver, and collaborates with other service providers; whether there is any requirement on service hours; and whether the service receiver has disciplinary power over the service provider.

Because the “subordination” is not an all or nothing concept, each type of service relationship does contain a certain degree of subordination.  Therefore, the determination of the service relationship shall be made by a  comprehensive consideration of the level of personal, economic and organizational subordination on a case-by-case basis.  To protect the laborers, court has ruled that “Any contract for the provision of service which bears the characteristics of subordinate laboring shall be considered an employment contract even though contemporaneously bearing the characteristics of hire of work or mandate.  In addition, where there is difficulty in distinguishing one type of contract from the another, the contract should in principle be viewed as an employment contract in light of the policy to protect the labor and the consideration that an employer is more able to adapt to the risk of disadvantage incurred from the classification of an ambiguous type of service relationship,”

From the press release of the “Conclusion of the Special Inspection on the Food Delivery Business” issued by the Occupational Safety and Health Administration of Ministry of Labor, it could be observed that in cases where the food delivery business’s service relationship with courier is identified as employment relationship, they possess the following features: (1) the couriers have to complete the delivery by themselves, and cannot assign others to deliver the meals without the permission by food delivery business; (2) the food delivery business has a clear regulation and management code governing the couriers; (3) if the couriers reject the delivery order, they will be subject to disciplinary action; (4) couriers are integrated into the production system of the food delivery business and collaborate with other couriers of the food delivery business.

On the other hand, the major reason that some food delivery businesses were not found to have employment relationship with their couriers is that “there is no requirement on the couriers to deliver the meals personally, the couriers can take on other food businesses’ works simultaneously, there is no punishment and point deduction mechanism, and the level of personal subordination is weak.”  The result shows that the personal subordination may indeed be a vital indicator to identify the employment relationship.

Since the business model of the food delivery business will be significantly impacted by the determination of the service relationship between the food delivery business and the couriers, it is foreseeable that the food delivery business will challenge the decision made by the Occupational Safety and Health Administration of Ministry of Labor, and the dispute will have to be finally resolved through court proceedings.  It is worthy to follow up on this issue to see whether courts will apply the traditional criteria prescribed by the previous precedents and the Judicial Interpretation, what will be the result of such application, and whether the court will adopt different types of criteria.

[Firm News]

  • Tsar & Tsai was awarded the “2020 Full Service Law Firm of the Year in Taiwan”, “Corporate Law Firm of the Year in Taiwan”, “Cross Border Finance Law Firm of the Year in Taiwan”, “Antitrust Law Firm of the Year in Taiwan”, and “Capital Markets Law Firm of the Year in Taiwan” by Corporate INTL.
  • Jackie Lin, Esq. was awarded the “Capital Markets Lawyer of the Year in Taiwan” by Leaders in Law 2020 Global Award; Jeanne Wang, Esq. was awarded the ”Intellectual Property Lawyer of the Year in Taiwan” by Leaders in Law 2020 Global Award.
  • Tsar & Tsai was rated by the Asialaw Leading Lawyers as follows:
    • Capital Markets / Corporate and M&A / Dispute Resolution/ Labor and Employment: “OUTSTANDING”;
    • Banking and Finance / Construction / Investment Fund / Intellectual Property / Private Equity / Technology and Telecommunications: ”HIGHLY RECOMMANDED”;
    • Consumer goods and services / Competition/antitrust / Energy / Real estate: “RECOMMANDED”.
  • The following members of Tsar & Tsai were named by the Asialaw Leading Lawyers 2020 Edition in various fields:
    • Intellectual Property: Jennifer Lin, Esq., Elite practitioner; Joyce Ho, Esq., Distinguished practitioner;
    • Dispute Resolution: Edgar Chen, Esq., Distinguished practitioner;
    • Banking & Finance: Jackie Lin, Esq., Distinguished practitioner;
    • Capital Markets: Jackie Lin, Esq. and Janice Lin, Esq., Distinguished practitioner
    • Corporate / M&A: Jackie Lin, Esq., James Chen, Esq., and C.Y. Huang, Esq., Distinguished practitioner.
  • On September 10, 2019, Joyce Ho, Esq. was invited by the Bureau of Foreign Trade, Ministry of Economic Affairs and the Taipei Bar Association to deliver a speech on “E-Commerce Policies, Regulations and Business Opportunities in the ASEAN and South Asia Markets” at the ASEAN & South Asia General and Commercial Law Forum.
  • From October 10 to 12, 2019, Matt Liu, Esq. and Albert Liao, Esq. were invited by Anderson Mori & Tomotsune to attend the “Best Friends Asia Competition Academy 2019” at Tokyo, where Matt Liu, Esq. delivered the speech titled: “Vertical Restraint of Digital Platforms”.
  • On October 28 to 30, 2019, Joyce Ho, Esq. was invited to attend and to deliver the speech titled “Punitive Damages for Patent” by Asian Patent Attorneys Association Korea Group at the “Asian Patent Attorneys Association 50th Anniversary Celebration Seminar of APAA Korea”.
  • Tsar & Tsai successfully represented Fei & Cheng Associates to persuade the Taiwan High Court Taichung Branch Court to reverse the first instance’s decision.
  • Fei & Cheng Associates, a well-established architectural firm, and its employees were charged with violating the Government Procurement Act, and were found guilty by the Taiwan Changhua District Court.  Even worse, National Changhua University of Education blacklisted Fei & Cheng Associates on the Government Procurement Gazette, shocking the architectural profession.  Tsar & Tsai represented Fei & Cheng Associates and its employees on appeal.  On October 30, 2019, after two-year investigation and trial, the Taiwan High Court Taichung Branch Court accepted Tsar & Tsai’s arguments, reversed the criminal conviction by the first instance and acquitted all the defendants. (Jennifer Lin, Esq., Edgar Chen, Esq., Henry Chang, Esq.)
  • Tsar & Tsai serves as Taiwan legal counsel for the financing parties, a consortium of 20 Taiwanese and international financial institutions, in successfully closing the Formosa 2 (376 MW) offshore wind project financing announced on October 29, 2019.  The total facility amount of the Formosa 2 project financing reached NTD 62.4 billion (approximately USD 2 billion).  (Janice Lin/Li-Chen Wang/Anthony Hsieh/Jones Sun)

[Seminars]

  • On September 10, 2019, Ray Su attended the “2nd Meeting of the American Practice Committee” held by the Taiwan Patent Attorneys Association.
  • From September 11 to 13, 2019, Randy Tsai, Esq. and Ray Hsu, Esq. attended the “Global Experts and Markets Conference” held by Allen & Overy, at London.
  •       From September 15 to 18, 2019, Ray Hsu, Esq. attended the “2019 AIPPI World Congress” held by the International Association for the Protection of Intellectual Property, at London.
  • On September 19, 2019, Ray Su attended the “4th Meeting of the Rights Protection Committee of Taiwan Patent Attorneys Association” held by the Taiwan Patent Attorneys Association.
  • From September 19 to 21, 2019, Vincent Lin Esq. and Yvonne Liu Esq. attended the “2019 Lex Mundi Asia/Pacific Regional Conference” held by Lex Mundi, at Seoul.
  • On September 22 to 27, 2019, Lillian Chu, Esq., Jackie Lin, Esq., Matt Liu, Esq., and Vincent Wang, Esq. attended the “2019 IBA Annual Conference” held by the International Bar Association, at Seoul.
  • On October 2, 2019, Jeanne Wang, Esq., Marilyn Wu, Esq., Anthony Hsieh, Esq. and Yijia Chao attended the “Criminal Duty and Compliance of Legal Entities” held by the Taiwan Criminal Law Society and the Criminal Law Center, National Taiwan University Law School.
  • On October 4, 2019, Randy Tsai, Esq. and Alex Yin, Esq. attended the “Trade Secret Protection Forum” held by the United States Chamber of Commerce.
  • On October 15, 2019, Lynn Lin, Esq. attended the “7th Asia Offshore Wind Day” held by the Asia Wind Energy Association.
  • On October 16, 2019, Ray Su attended the “89th Pharmaceutical Affairs Forum” co-held by the Taiwan Product Quality Research Institute and the Biotechnology and Pharmaceutical Industries Program Office, MOEA.
  • On October 23, 2019, Tsar & Tsai Foundation held a lunch meeting and invited Christopher E. Hanba, partner of the Honigman LLP, as the keynote speaker to deliver the speech titled: “The Recent Development of Trade Secrets at U.S. and Taiwan”, at Tsar & Tsai Taipei office; Josh Fan, Esq. was the panelist.
  • From October 25 and 26, 2019, Ray Su attended the “Seminar on Drug Listing and Patent Linkage Regulations” co-organized by the Intellectual Property Office, MOEA, and the Taiwan Intellectual Property Training Academy.
  • From October 27 to 30, 2019, Matt Liu, Esq. attended the “2019 Association of Corporate Counsel (ACC) Annual Meeting” held by Lex Mundi, at Phoenix, U.S.A.