LEGAL UPDATES - TAK Associes and Ecovis International

The Patent Act of Taiwan was amended for the fourteenth time on May 1st 2019. The latest amendment became effective on November 1st, 2019, introducing some of the following changes

1. Divisional patent applications:
Both invention and utility model patents are now allowed to apply for divisional patents. The time limit to apply has also been extended from 30 days to 3 months after the date on which an approval decision for the original patent application or re-examination is served.

2. Increase the efficiency of invalidation proceedings:
A requester of invalidation action shall as of now provide invalidation reasons or evidence within 3 months after the date of filing. The reason or evidence shall not be examined if the requester does not respect this deadline.

3. Post-grant amendment to utility model patents:
Prior to this amendment, any post-grant amendment to utility model patents could be done through formality examination. Now, the patentee is allowed to apply for post-grant amendment to the utility model patent under invalidation proceedings, whether under the process for technical evaluation report application, or under a litigation. In addition, amendment review will be based on substantive examination rather than formality examination for greater effectiveness during disputes.

4. Extension for the protection term of design patent
Design patent terms have been extended from 12 to 15 years following demands of the industry to align with the regulations applied by the Hague Agreement member-states.

As draft amendment to the Foreign Trade Act passed the legislature’s Economics Committee review on November 18th. The amendment aims to increases fines for the use of fake certificates of origin on imported and exported goods, especially for high-tech products transported to unrestricted regions. Currently, such fines range from NT$30,000 to NT$300,000, and will be changed, should the draft pass, to a bracket between NT$60,000 and NT$3 million. In addition, the bill introduces a « whistle-blower clause » to encourage people to denounce offenders. The draft amendment was introduced following several cases or fraudulent labelling from importers. The government had indeed identified several companies re-tagging Chinese products with false labels of origin to avoid anti-dumping tariffs, or to ship them to the United States in the context the trade dispute.

The Taiwanese Ministry of Finance published on November 8th the “Regulations Governing Scope and Identification of Allowable Deductions of Necessary Expenses from Individual Salary and Wage”. These regulations aim to clarify the amendments made to Articles 14 and 126 of Income Tax Act (“the Act”) last July.

Article 14 indeed provides that the amount of income from salaries and wages shall be all salaries and wages earned for performing duties or doing works after deducting the “special deduction of income from salaries/wages”. The amount of this special deduction is now fixed to 20,000 NTD this fiscal year.

The new Regulations also specify that, if the total amount of the “necessary expenses” directly related to the work or services rendered and paid by the income taxpayer is higher than 20,000 NTD (“special deduction”), the taxpayer may choose to deduct these necessary expenses from salaries and wages alternatively, and the amount of income shall be the balance after deducting these “necessary expenses”. 

Finally, the necessary expenses provided in the new Article 14 are stated to be: vocational clothing expenses; upgrading training expenses and vocational tool expenses. According to the Regulations, the amount of deduction of each necessary expense shall not exceed 3% of the income from salaries/wages.

As the spread of fake news and misinformation in social media greatly impacts public tranquility, Taiwanese legislators amended both the Food Administration Act and the Agricultural Products Market Transaction Act on June 21st 2019. New articles effective since July 17th prohibit any person to deliberately disseminate rumors or false information affecting either the market food price, the competent authorities’ implementation of programs on food production and marketing, or public rice procurement. Any damage is subjected to a fine ranging from NTD 60,000 to NTD 300,000. Since August 15th, the Agricultural Products Market Transaction Act also applies this fine. 'False information' may include any information, news, data, advertisements, reports, poll, events or other forms, whether spread in verbal, writing, or video, via the press, the internet or other media

Article 9 of the Labor Standards Act now compels dispatch agencies to replace fixed-term contracts between workers and agencies with non-fixed-term contract. Non-compliant agencies are exposed to fines ranging from NTD 20,000 to NTD 1 million in case of violation. Dispatched workers may furthermore require their dispatch agencies to pay wages 'if the dispatch agency is fined by the authority for owing the dispatched worker wages or was ordered to pay by a deadline but has failed to comply'. Should the client company be asked to pay for wages, it may either ask the agency for reimbursement or deduct these expenses from the agency's fees. Regarding occupational accidents, both the dispatch agency and the client company shall be jointly and severally liable for compensation bore by employers. To prevent dispatched worker transfers by client companies, a new article stipulates that “a client company shall not interview the dispatched worker or undertake any other conduct of appointing a specific dispatched worker before the dispatch agency and the dispatched worker sign a labor contract”. Dispatched worker has 90 days to execute a contract with the client company. The client company shall negotiate about contract within 10 days after receiving such notice.

Last August, the Taiwan government approved abolishing the stamp tax (up to 4% on the transaction amount). The Stamp Tax Act, passed in 1934, currenly applies to the following transactions: receipts for certain monetary payments, contracts to perform a specific job, task contracts for the sale of movable properties, as well as contracts for the sale, transfer and subdivision of real estate. In practice, the tak also applies to contracts such as Shares Purchase Agreements (statiscally more frequent than mergers). Yet, although local businesses support the move to repeal the Act, a strong opposition has emerged from local governments in Taiwan, for whom the tax is a substantial source of income. The outcome of the vote at the Parliament is therefore unclear at this stage, and will be discussed this year 2019 as a top priority matter for the government.

On March 26, 2019, part of the amendments to the Road Traffic Management and Penalty Act in Taiwan was passed by the legislature, and is effective as from July 1, 2019.

Fines for DUI for car drivers vary from 30,000 to 120,000 NTD while penalty for motorcycle drivers remains the same , ranging from 15,000 to 90,000 NTD. For the 2nd DUI, the maximum penalty is applicable (90,000 or 120,000 NTD), to which 90,000 NTD is added for each additional DUI.

Suspension of license goes from 1 to 2 years and can be prolonged up to 4 years in specific cases.

Skipping checkpoints or rejecting the BAC (Blood Alcohol Concentration) test goes from 90,000 up to 180,000 NTD. The same amount is applicable for any other individual offense.

Drunk driving limitation: from 0,15 mg/l (through breath) - from 0,03% (in blood)

Passengers aged 18 and + will be fined as well from 600 to 3,000 NTD. Slow-vehicles are fined 600 to 1,200 NTD (drivers refusing BAC will be fined 2,400 NTD).

The Financial Supervisory Commission (FSC) published an interpretation on July 3rd defining cryptocurrency and including it under the current legal framework in the Securities and Exchange Act.

Virtual currencies that contain a nature of securities shall belong to “Securities”. It shall mean the application of cryptography, distributed ledger technology or other similar technology that represents the value stored, exchanged and transferred in a digital way and is in circulation on the market. It shall also contain a nature of investment as follows:

- Investors contribute to the capital;

- Investment is based on a common business and plan;

- Investors expect to earn profits;

- Profits are decided by the efforts of both the issuer and a third party.

This is the first time that Taiwanese government takes official action. It is a milestone in the development and governance of cryptocurrencies. However, the government's next steps and attitude in the long run remain uncertain.

What is cash-out merger ?

After a merger, the surviving or the new company (acquiring company) may issue new shares to the shareholders of the dissolved company (target) as compensation. The acquiring company may choose to pay cash.

Policies in Taiwan

In order to facilitate the procedure for mergers and acquisitions, the Business Mergers and Acquisitions Act of Taiwan (the M&A Act) now provides that the shareholders or directors with personal interest may exercise their voting right for the merger resolution. On the other hand, to balance the right of the minority shareholders, the shareholders of the target company may request the acquiring company to buy back the shares at the fair price (appraisal right). In case no agreement is reached within 60 days since the resolution, to ensure the fair price, the dispute shall be submitted to and settled by the court upon application.

Constitutional Interpretation NO. 770

However, the Interpretation NO. 770 further indicated that information on personal interests shall be available to other shareholders within a reasonable period prior to the Board or General meeting; and measures shall be taken if there is not enough information.

Regulations of the Duty of Disclosure

For public companies, according to the article 31 of the Regulations Governing the Acquisition and Disposal of Assets by Public Companies published by the Financial Supervisory Commission, in the event of any merger, demerger, acquisition, or transfer of shares of a public listed company, the company shall publicly announce and report the relevant information on the Financial Supervisory Commission’s designated website within 2 days after the resolution of board meeting.

The Taiwan Stock Exchange has amended its guideline for the Self-Regulatory Rules on Disclosure of Merger and Acquisition Information on April 24, 2019. The directors shall disclose their names, material information, the reason for exercising voting right or not exercising voting rights and the reason for approval or dissent.

In the course of mergers and acquisitions, it will be better for the shareholders to know whether the price is fair or underestimated. However, it may thus affect a company's strategy on mergers and acquisitions. In response to the Interpretation NO.770, the decision on whether there will be more duties of disclosure remains at the discretion of the legislative policy and is now discussed by the Taiwanese authorities.