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: 886-2-6638-6999; e-mail: Law@TsarTsai.com.tw ).

Editors: Edgar Chen / George Shih

The Legislative Yuan passed the Amendment to the Criminal Code regarding the Offense against Agriculture and Industry Products and the Offense against Credit

On December 31, 2019, the Legislative Yuan passed the following amendment to the Criminal Code, which was promulgated by the Presidential Order on January 15, 2020: (1) Inserting a new Item 3 in Paragraph 1, Article 251 of the Criminal Code that reads “the daily necessities as announced by the Executive Yuan”, by which the daily necessities are added to the hoarding prohibition list while a limit is set based on the principle of explicit delegation to avoid covering all daily necessities; and, making it an aggregated offense in the event such crime is committed via broadcasting, television, electronic communication, the Internet or other media since the crime so committed could result in public panic or market turbulence. (2) Increasing the punishment prescribed for damaging other people’s credit by circulating rumors or by fraudulent means for the Offense against Credit in Article 313 of the Criminal Code from NTD 30,000 to NTD 200,000; and making it an aggregated offense in the event the crime is committed via broadcasting, television, electronic communication, the Internet or other media since the crime so committed could result in more severe damages to the victim’s credit. (Rebecca Lin Esq.)

The Legislative Yuan passed the promulgation of Anti-Penetration Act

On December 31, 2019, the Legislative Yuan passed the Anti-Penetration Act, which was promulgated by the Presidential Order on January 15, 2020.  For preventing penetration by the foreign hostile power, no one shall be instructed, commissioned, or funded by the penetration source to conduct the following penetration acts: (1) Contribution to political donations or referendum funding: imprisonment for no more than five years, and a concurrent fine of no more than NTD 10 million; (2) Engagement in campaign: imprisonment for no more than five years, and a concurrent fine of no more than NTD 10 million; (3) Lobbying: administrative fine between NTD 500,000 and five million; (4) Lobbying in national defense, foreign affairs or the Mainland affairs involving national security or national secrets: imprisonment for no more than three years, and a concurrent fine of no more than NTD five million; (5) Interference with the assembly or parade: increasing the punishment up to one half of the original punishment; (6) Encumbering the election: punishment by increasing up to one half of the original punishment. In addition, the subject of punishment under this Act includes the direct actor, the source of penetration and the intermediary. Dual punishment is applicable for juridical persons, associations or other institutions. (Rebecca Lin Esq.)

The Legislative Yuan passed an amendment to the Trade Secrets Act that introduces a “Confidentiality Order” system

On December 31, 2019, the Legislative Yuan passed an amendment to the Trade Secrets Act, which was promulgated by the Presidential Order on January 15, 2020.  The highlights of the amendment include: (1) that a prosecutor may, if she/he deems necessary, issue an investigation confidentiality order ex officio during an investigation; (2) that any person subject to an investigation confidentiality order shall not use the investigation information for any purpose other than the investigation, or disclose such information to any person not subject to the investigation confidentiality order; (3) that an investigation confidentiality order shall be issued in writing or verbally, and a trade secret owner shall be afforded an opportunity to state his/her opinion; and that the procedure for revocation or revision of the investigation confidentiality order, as well as the continuity between the confidentiality order during investigation and the court confidentiality preservation order, are explicitly provided for; and (4) that any person violating an investigation confidentiality order shall be sentenced to imprisonment for a period not exceeding three years, and/or a fine not exceeding NT$1,000,000. (Sean Fan, Esq.)

The Financial Supervisory Commission (“FSC”) and the Taipei Exchange (TPEx) promulgated rules regarding the Security Token Offering (“STO”), a public offering where tokenized digital securities may be traded.

The FSC issued administrative interpretation regarding the digital currencies (collectively referred to as the “Security Tokens”), which are deemed to possess the same nature as securities.  The TPEx also issued the “Taipei Exchange Rules Governing the Operation by Securities Firms of the Business of Proprietary Trading of Security Tokens”.  The highlights thereof include: (1) an Issuer may issue Security Tokens pursuant to the Securities and Exchange Act in the cumulative amount not exceeding NTD 30 million.  An “Issuer” means a company limited by shares established under the Company Act, excluding the companies listed on TWSE, TPEx, or emerging stock market. (2) The types of Security Tokens which an Issuer may offer on a trading platform shall be limited to non-equity dividend tokens and debt tokens.  For any signle offering of the Security Tokens by an Issuer, all of the Security Tokens offered shall have the same terms and conditions as well as the same price.  The currency of the funds raised by the Issuer and the profit or interest distributed after the offering shall be limited to New Taiwan Dollars only.  (3) Only professional investors are allowed to participate in the subscribing and trading of Security Tokens.  (4) Prospectus for Security Tokens offering shall be prepared and delivered by the Issuer pursuant to the Securities and Exchange Act; the Issuer shall make public disclosure of material information, including any event with a material effect on the rights and interests of the investors or on the securities prices, and shall submit report thereof to the Competent Authority. (5) A securities dealer may apply for operating the business of proprietary trading of Security Tokens, and may trade Security Tokens during the offering period; the minimum requirement of capital therefor shall be NTD 100 million. (6) The securities dealer shall operate the business of proprietary trading of Security Tokens on single trading platform.  (7) A securities dealer who is approved to operate the business of proprietary trading of Security Tokens may also operate the business of transferring and storing Security Tokens, and of information provision service and financial consulting business. (Andy Lee, Esq.)

The FSC promulgated regulations on the minimum ratio of death benefits of life insurance policies to non-forfeiture policy value, which may affect the survival of savings oriented insurance products.

For solving the problem that insurance companies tend to reduce the death benefits of savings oriented insurance products, which have virtuely transformed the life insurance nature of the products to a mere investments tool, the FSC, by its letter interpretation No. Jin-Guan-Bao-Shou–Zhi-10804960741, sets a new rule on the “minimum ratio of the death benefits of life insurance policies to the non-forfeiture policy value”, which requires insurance companies to bear certain extent of the risk of death so as to re-capture the life insurance nature of the savings oriented insurance policies.  The new rule will become effective July 1, 2020.  The insurance industry has estimated that as a result of the new rule, the premiums of savings oriented insurance products will see a 5 to 30 percent increase, and alerted that the new rule might lead to the discontinuance of the savings oriented insurance products. (Linda Huang, Esq.)

The Ministry of Finance (“MOF”) promulgated the “Rules Governing the Deduction of Undistributed Profits and Tax Refund Application for Substantial Investments by Companies and Limited Partnerships”.

To supplement Article 23-3 of the Statute for Industrial Innovation enacted in July 2019, the MOF, by its Order No. Tai-Tsai-Shui-Zi-10804671270 (dated January 9, 2020) promulgated the “Rules Governing the Deduction of Undistributed Profits and Tax Refund Application for Substantial Investments by Companies and Limited Partnerships” to set forth the elements of the deduction of undistributed profits by profit-seeking enterprises when “using profit to make substantial investments” pursurant to Article 23-3 of the Statute for Industrial Innovation, which include the types of investment expenses that may be deducted, the deduction threshold (currently NTD 1 million), and the supporting documents that shall be submitted when filing the items of deduction of undistributed profits. (Roy Su, Esq.)

The FSC designated 5 domestic systemically important banks (D-SIBs), and amended the “Regulations Governing the Capital Adequacy and Capital Category of Banks”.

On December 19, 2019, the FSC designated CTBC Bank, Cathay United Bank, Taipei Fubon Commercial Bank, Mega International Commercial Bank and Taiwan Cooperative Bank to be the 5 D-SIBs based upon 4 identifying indicators: scale, relativity, replaceability and complexity.  Meanwhile, the FSC amended the “Regulations Governing the Capital Adequacy and Capital Category of Banks” and promulgated the “Directions Governing the Identifying Indicators and Requirements for Domestic Systemically Important Banks” to strengthen 4 supervision measures and 3 differentiated favorable treatments pertaining to the 5 D-SIBs.  The supervision measures include: raising the capital buffer by 2% (may allocated the raising margin within 4 years), raising an additional capital buffer under the request of competent authority (the range is discretionary), raising internal management capital by 2%, and holding and passing the 2-year stress test annually.  The differentiated favorable treatments include: automatic approval of investments which are finance-industry-related and not exceeding NTD 50 million, advantageous evaluation for establishing branches in foreign countries or in the Mainland area, and accelerated approval of trial businesses or new business. (Michael Hsu, Esq.)

The FSC revised the “Guidelines for Reporting Voting Shares pursuant to Paragraph 2, Article 25 of the Banking Act” and the “Guidelines for Reporting Voting Shares pursuant to Paragraph 2, Article 16 of the Financial Holding Company Act”

On December 25, 2019, the FSC issued a letter (No. Jin-Guan-Yin-Guo-Zhi 10802741611) to revise the “Guidelines for Reporting Voting Shares pursuant to Paragraph 2, Article 25 of the Banking Act” and the “Guidelines for Reporting Voting Shares pursuant to Paragraph 2, Article 16 of the Financial Holding Company Act”.  The gist of the revision is the inclusion of the “beneficial owner” concept to implement the supervisory policy of equity transparency.  If a legal entity possesses more than 5% of the voting shares of a bank or a financial holding company, the major shareholders of such legal entity, i.e., the natural person who owns more than 25% of the equity or capital of such legal entity, are now mandated to make the required disclosure to to the FSC.  In addition, any natural persons who control such a legal entity by means of contract, trust or other practical measures must also make the aforementioned disclosure.  The revised Guidelines will become effective July 1, 2020. (Michael Hsu, Esq.)

The Ministry of Labor (“MOL”) explained the issues on leave-taking and wages in connection with the prevention of COVID-19

Recently, the MOL discussed the labor issues in connection with the diesease prevention.  If an employee is infected due to an occupational cause and is required to be quarantined for treatment and unable to work, the rules in relation to occupational sickness or accidents leave shall govern.  If the infection is not resulted from an occupational cause, the definition of “occupational accidents” is not satisfied and the rules in relation to the ordinary sickness leave shall govern.  Based upon the current court practice, whether an infection is due to an occupationally related cause shall be determined by whether the employee was performing a necessary act within his/her job duties and whether an adequate causation exists between the employee’s act and the infection.  In the event the employee is not infected but has a history of contact with an infected person that requires quarantine by the disease prevention authority, the rules governing the ordinary sickness leave shall apply.  If the employee has to care for any family member who is infected or quarantined, the employee may request family care leave pursuant to the Act of Gender Equality in Employment.  The period of family care leave shall be computed aggregately with the period of normal leave, and either parent may make the request.  In the evet there is a need for caring a child under 12 years of age due to a government ordered delay of the school, a parent may request a disease prevention care leave, which is a special measure and is concurrently applicable with the above-mentioned leave-taking regulations.  However, if an employee is entitled to disease prevention care leave, the employer may not need to pay for the wages during the period of such leave. (Linda Huang, Esq.)

The MOF indicated that agricultural land housing a renewable energy facility may be exempt from the land value tax, and the agrecultural land tax may be imposed (which is currently suspended)

The MOF issued a letter interpretation No. Tai-Tsai-Shui-Zi-10804654480 (dated December 16, 2019), which indicated that in the events that a renewable energy facility is built on agricultural land pursuant to the “Rules for the Review of Applications for Permission of Use of Agricultural Facilities on Agricultural Land”, that the permission of use thereof is supported by documentary evidence of the agriculture competent authority, that the energy competent authority has given consent pursuant to the relevant energy laws and regulations, and that the land use complies with the rules governing the agricultural use of agricultural land, the land value tax may be exempted and the agricultural land tax (which is currently suspended) may be imposed by virtue of Article 22 of the Land Tax Act. (Roy Su, Esq.)

The MOF indicated that if the residual asset from a dissolution liquidation of an offshore enterprise in which a for-profit enterprise invested exceeds the originally invested capital, the exceeded portion may be qualified for the tax benefit as an investment income derived from an offshore invested enterprise.

The MOF issued a letter of interpretation No. Tai-Tsai-Shui-Zi-10804618580 (dated December 23, 2019), which indicated that in the event that an offshore enterprise located in a state or region other than Taiwan, Penghu, Kinmen and Matsu, in which a for-profit enterprise controls or has substantial influence, is dissolved and liquidated pursuant to the law of the offshore jurisdiction and that the residual asset distributed to the for-profit enterprise exceeds the originally capital invested, such exceeded portion may be qualified as an “investment income derived from an offshore invested enterprise” in Subparagraph 4 of Paragraph 1, Article 3 of the Management, Utilization, and Taxation of Repatriated Offshore Funds Act.  If the for-profit enterprise elects to remit such income back to Taiwan, it may apply for the utilization and taxation thereof pursuant to the aforementioned law.  The minutes of the shareholders’ meeting or board meeting recording the resolutions of the distribution of surplus earnings, which are required to be submitted pursuant to Subpargarph 3 of Paragraph 2, Article 4 of the “Regulations Governing the Management, Utilization, and Taxation of Repatriated Offshore Funds, shall be replaced by the minutes of the shareholders’ meeting or board meeting of the offshore enterprise or other relevant supporting documents that evidence the resolution of dissolution. (Roy Su, Esq.)

Whether the Coronavirus Pandemic Constitutes a Force Majeure Event in Contracts

Hannah Chang, Esq./ C. H. Chen, Esq.

Due to the outbreak of the new coronavirus (a.k.a. COVID-19), China imposed lockdown in several provinces. People were prohibited from entering and leaving their cities, and all public transportation was suspended.  Consequently, Chinese enterprises could not operate normally after the Lunar New Year, which caused delays in the manufacturing and trading industries on delivery of goods.  The World Health Organization (“WHO”) has declared the epidemic to be a Pandemic. The China Council for the Promotion of International Trade (“CCPIT”) announced on January 30, 2020 that companies could apply to the CCPIT for a “Force Majeure Certificate” if they could not fulfill or meet the schedules of international trade contracts.  Such a Certificate could also be a leverage when negotiating with foreign companies.  It is reported that the CCPIT has issued thousands of Certificates.  However, it has been reported that some foreign vendors had rejected Chinese companies’ argument that the contract between them could be terminated by reason of force majeure based upon the Certificate.

In dealing with the pandemic, Taiwanese government also implemented several measures, such as entry restriction for travelers, home quarantine, and requisition of medical supplies.  Many companies announced that they were compelled to stop or suspend operations because of the coronavirus outbreak. As the Coronavirus continues to spread, could either party of a contract claim that the coronavirus situation constitutes a force majeure event? It is a serious issue that many companies have to face.

Generally, if there is a force majeure clause in a contract, either party should supposedly be exempt from the performance of contractual obligations or the liability for the delay in delivery upon the occurrence of a force majeure event, or should even be entitled to terminate the contract.  However, to what extent that a force majeure event affects a contract depends on the definition thereof in the contracts.  If the force majeure clause in the contract specifically illustrates the events that would constitute force majeure, then whether the coronavirus outbreak meets the contractual definition of force majeure would depend on whether such clause contains “disease”, “plague”, “quarantine”, or similar wording.  If the contract did not explicitly illustrate the event of force majeure, or only provides for a vague definition of force majeure, disputes could arise on whether the coronavirus outbreak constitutes a force majeure event.

In Taiwanese court practice, the term “force majeure” means an event that is unpredictable and insurmountable, and that it is inevitable even if the highest duty of care has been conducted; namely, the event occurred as a result of an act of God and is beyond anyone’s control.  Such events include, but are not limited to, earthquakes, floods, fire and any natural disasters that are out of anyone’s control.  After the outbreak of Severe Acute Respiratory Syndrome (“SARS”) in 2003, a court decision stated: “Due to the fact that SARS epidemic outbroke during the term of the contract, the government designated SARS to be a certifiable disease based upon the Communicable Disease Control Act and urged people to avoid gathering in public, causing the cancellation of the seven campus performances which the plaintiff had arranged. Therefore, it was a force majeure event that prevented the plaintiff from performing the contract as set forth in Article 6 of the contract. Since the plaintiff failed to perform the contract due a force majeure event, the failure to perform does not constitute a breach of contract. Therefore, according to Article 266 of the Civil Law, if neither party is imputed to the impossibility of one party’s performance, the opposite party shall be released from its obligation to perform the counter-prestation.” In sum, the court held that certifiable disease constitutes a force majeure event.  Based upon aforementioned court decision, the coronavirus outbreak could be recognized as a force majeure event by the court.

However, it should be noted that whether either party of a contract could be exempt from the contractual liability by virtue of the force majeure clause still depends upon whether the force majeure event is related to the performance or breach of contract.  If there is no causation between certifiable disease outbreak and the performance of a contract, neither the party breaching the contract nor the party sustaining the damages may claim exemption from the contractual obligations.  Thus, there are other court decisions that held: “The Ministry of Health and Welfare issued an announcement of SARS outbreak and entry restriction on April 18, 2003. Therefore those measures were implemented after the scheduled time that the appellant shall deliver the goods, and SARS broke out during appellant’s default period. According to Paragraph 2, Article 231 of the Civil Law, the appellant should still be liable for any damages arising during the force majeure”; and “Although SARS spread in 2003, Chiayi County is not an infected area; moreover, the affected period of SARS was from April to July 2003. When the WHO removed Taiwan from the SARS-infected area on July 5, 2003, people’s commercial and social activities resumed gradually. After the epidemic had ended, the appellant’s operating income for the year had not been improved; it therefore showed there were other factors affecting the income than just one epidemic.”

In addition, a court has also held that: “Taiwan had been listed as a SARS-infected area; meanwhile, there was a large demand of ear thermometers in Taiwan, which caused a supply shortage in the market. Neither parties could predict the situation that Taiwan would be an infected area on May 21, and it is obviously unfair for the appellant to perform the contract even though there was a shortage of ear thermometers in the market. Therefore, the principle of Clausula rebus sic stantibus (which means the change of circumstances) should be applied in this case.”  Apparently, courts might also accept the plead of Clausula rebus sic stantibus when the infectious disease outbreak causes a shortage of products in the market.  It is therefore advisable that enterprises take into account the above-mentioned factors when facing similar circumstances.

[Firm News]

  • The “Benchmark Litigation Asia-Pacific 2020” has announced that Edgar Chen, Esq., in the field of “Commercial and transactions, White-collar crime” and Jennifer Lin and Joyce Ho, in the field of “Intellectual property”, were respectively named a “Dispute resolution star”.
  • Tsar & Tsai was awarded by the “Asia IP” as Tier 1 law firm in the field of Copyright.
  • Jennifer Lin, Edgar Chen, Jackie Lin, Janice Lin, Matt Liu, James Cheng and C.Y. Huang were selected as a “Taiwan’s Best Lawyer” respectively in the field of Dispute resolution/IP/Antitrust/ Corporate law/Labor & employment/M&A/Capital markets/Banking & Finance/Foreign Direct Investment/Cross-border transactions.
  • Tsar & Tsai was selected by the “2020 Global Law Experts Annual Awards” as “Corporate Law Firm of the Year in Taiwan – 2020”, “Dispute Resolution Law Firm of the Year in Taiwan – 2020”, “Full Service Law Firm of the Year in Taiwan – 2020” and “Intellectual Property Law Firm of the Year in Taiwan – 2020”.
  • Tsar & Tsai serves as lenders’ legal counsel for Formosa Offshore Windfarm Project Financing and Yunlin Offshore Windfarm Project Financing, both of which were selected as “Deals of the Year 2019” by the Asian-mena Counsel.
  • Tsar & Tsai’s service was recognized as the “IJ Global Asia Pacific Offshore Wind Deal of the Year 2019” for Yunlin Offshore Windfarm Project Financing.
  • Tsar & Tsai was named by the Global Competition Review as a “2020 Taiwan Elite Firm”.
  • Tsar & Tsai’s service was recognized by the Refinitiv PFI Awards as the “Asia Pacific renewables Deal of the YearYunlin Offshore Wind”.
  • Tsar & Tsai was selected by the “M&A Today – Global Award 2020” as “Full Service Law Firm of the YearTaiwan”.
  • Tsar & Tsai was awarded by the Global Law Experts with “Antitrust Law Firm of the Year in Taiwan2020”.
  • Tsar & Tsai was selected by the “Legal 500 Asia Pacific 2020” as a “Taiwan Top-Tier Firm” in the fields of Capital markets / Corporate and M&A / Dispute resolution / Intellectual property / IP-prosecution / Labour and employment / TMT.
  • The “Dissent” magazine, in its article titled “A Happiness Business with Both Historical Heritage and Modern Progress”, reported that Tsar & Tsai’s business philosophy and the office environment were consistent with a first-class law firms in the world.

[Seminars]

  • On February 15, 2020, Edgar Chen, Esq. and Dennis Chen, Esq. attended the “Supreme Court Case Allocation and Transparency of Judge Avoidance” seminar held by the NTU Law School Alumni.
  • On February 14, 2020, Ju-Ya Lu, Esq. and Rebecca Lin, Esq. attended the “Amendment to Criminal Procedure Act in Reacting to Two Treaties and other Amendments to Criminal Code, Detention Act and Narcotics Hazard Prevention Act” seminar held by the Shilin District Court.
  • On February 17, Hannah Chang, Esq., attended the “Fake News, Freedom of Speech and Democracy” seminar held by the Taipei University.
  • On February 24, 2020, Yijia Chao, Esq., attended the international seminar of “Foreign Investment and National Security – Protection of Sensitivity Technology and National Security Industry” held by the Taiwan Technology Law Society.