Changes in Law and Regulations

By virtue of the amended Labor Standard Act (“LSA”), the Ministry of Labor promulgated the amended Enforcement Rules of Labor Standard Act (the “Enforcement Rules”) ─ By virtue of the amendment to the LSA on January 31, 2018, the Ministry of Labor promulgated the amended Enforcement Rules of Labor Standard Act on February 27, 2018. The following are some significant amendments to the Enforcement Rules: (1) Employers shall publicly announce the implementation of the extension of work hours, the change of rest period between shifts, or the adjustment of regular day-off. (2) In the event of work hours extension, the “3 month period” referred to in the proviso of Paragraph 2, Article 32 of LSA, where the employee’s maximum work time shall not exceed 138 total hours, shall mean a cycle of 3 consecutive calendar months. (3) When determining whether an employer employs 30 employees or more, the employees employed by the branch offices or affiliated units of the employer shall also be counted; (4) For employee whose work time was extended or who works on rest days, the deadline for taking compensatory leave shall be either (a) the last day of the agreed year mechanism (e.g., anniversary, calendar year or school year, etc.) agreed to between the employer and employee or (b) December 31 of the then current years. (5) The unused annual leaves carried forward to the following year that subject to the agreement between the employer and employee must be used first in the following year. The amended Enforcement Rules became effective on February 27, 2018. 

The Constitutional Court ruled in J.Y. Interpretation No. 762 that Paragraph 2, Article 33 of the Code of Criminal Procedure in compliance with Constitution ─ The Constitutional Court of the Judicial Yuan declares in J.Y. Interpretation No. 762, issued March 9, 2018, that Paragraph 2, Article 33 of the Code of Criminal Procedure is unconstitutional because said provision hinders criminal defendant’s right to defense by prohibiting the defendants who are represented by counsel from directly accessing the court files and from obtaining copies of the court files and evidence other than hearing record. The Constitutional Court indicates that the aforementioned provision is not in compliance with the principal of due process prescribed in Article 16 of the Constitution pertaining to the protection of the right of instituting legal proceedings, and has orders that the competent authority amend the Code of Criminal Procedure accordingly within 1 year from the issuance of this Interpretation. 

The “Statute for Control of Cosmetic Hygiene” was amended to be in line with international cosmetic management practices ─ The Legislative Yuan finally approved the amendments to “Statute for Control of Cosmetic Hygiene”, which is now renamed “Cosmetic Hygiene Safety Administration Act”, on Apr 10, 2018. The important aspects of the amended law include:

  1. Amend the definition of cosmetics. For example, the non-medical use toothpaste and mouthwash are integrated into the cosmetics management system. Insert definitions of cosmetics companies, product information files, and cosmetic ingredients into the Act.

  2. Abolish the examination and registration of cosmetic pigments and the cosmetics inspection system and replace it with a product registration and product information system. The cosmetics manufacturers and importers must complete the product registration and establish the product information files (PIF) for products designated by the Ministry of Health and Welfare before they can be put on the market. In addition, the cosmetics manufacturing factories must follow the Good Manufacturing Practices (GMP).

  3. Revise the term “Chemical Containing Cosmetics” to “Use-Specific Cosmetics”. The old regulations will be gradually replaced by the new product registration and product information files system within 5 years

  4. Abolish the advanced approval system for cosmetics advertisements. At the same time, increase the penalties for non-complying advertisements.

  5. Establish the product sources and flow data, and the voluntary reporting obligation by the entities engaging in cosmetics business.

  6. Strengthen the product origin management, add the system of spot checks and sampling inspections, and require manufacturers to recall and destroy the non-complying products within a prescribed period.

  7. Abolish criminal penalties and raise the upper limit of administrative penalties. Insert articles of whistleblower protection.

Amendments to the Securities and Exchange Act strengthening independent director’s power ─ Amended Articles 14-2 and 178 of the Securities and Exchange Act (the “SEA”) were passed by the Legislative Yuan on April 3, 2018. Pursuant to Amended Article 14-2 of the SEA, a Company shall not impede, refuse or evade the performance of duties by its independent directors. An independent director may engage experts or ask the board of directors to designate appropriate persons to assist in performing his/her duties if he/she deems necessary, and the independent director may do so at the Company’s expense. According to Article 178 of the SEA, the company that violates Article 14-2 of the SEA shall be imposed with a fine of not less than NT$ 240,000 but not more than NT$ 2,400,000.

Amendments to the Insurance Act ─ Articles 16-1 and 163-1 were added to the Insurance Act (the “Act”) by the Legislative Yuan on April 3, 2018. Pursuant to Article 16-1 of the Act, when the parent of a minor or the guardian of a person who may be subject to declaration of guardianship is the insured in the insurance contract under an insurance trust, the proposer, the insured and the beneficiary of the insurance contract may jointly agree prior to the occurrence of insured risk that the insurance payment is to be remitted to a designated trust account upon the occurrence of insured risk, and the proposer may waive the right under Article 111 of the Act regarding disposing insurable interest. Article 163-1 of the Act provides that insurance agencies and insurance brokers may, upon approval by the competent authority, correspond with the electronic commerce development of the insurance industry to engage in the relevant insurance business, and use electronic systems to operate business. 

Opinions and Views in Practice / Legal News

The Financial Supervisory Commission (“FSC”) amended the Regulations Governing the Use of Proxies for Attendance at Shareholders Meeting of Public Companies (the “Regulations”) – In order to eliminate the situation that a solicitor of proxy fails to attend the shareholders meeting after obtaining the proxies from a shareholder, which would result in obstruction of the shareholder’s rights to attend and to vote by proxy at the shareholders meeting, the FSC promulgated the amended Regulations on March 29, 2018 to provide that, after the company submits the proxies data to the Securities and Futures Institute or announces them publicly, the solicitor shall attend the shareholders meeting to represent the shareholder as delegated. In addition, no solicitor of proxy shall include in the content of the solicitation advertisements or documents any wording implying that the solicitor may not attend the shareholders meeting. Anyone who violates the aforementioned provisions shall be prohibited to solicit proxy within three years after being cited for violation by the FSC. 

The FSC issued an administrative interpretation regarding Article 150 of the Securities and Exchange Act –  The FSC issued the following administrative interpretation regarding Article 150 of the Securities and Exchange Act in its letter dated March 13, 2018: The collection of margins through custom margin accounts by leverage transaction merchants conducting leverage contract trading of Taiwanese stocks shall not be subject to Article 150 of the Securities and Exchange Act (which provides that the trading of listed securities shall be conducted on a centralized securities exchange market operated by a stock exchange). 

The FSC issued an administrative interpretation regarding Article 22(1) of the Securities and Exchange Act – In its letter dated April 3, 2018, the FSC issued the following administrative interpretation regarding Article 22(1) of the Securities and Exchange Act: Both the Government bonds denominated in a foreign currency and the ordinary corporate bonds denominated in a foreign currency that offered and issued by a foreign issuer within the territory of the Republic of China for sale to professional investors only (the “Securities”) are the “exempt securities” under Article 22(1) of Securities and Exchange Act.  The public offering or issuing of the Securities are exempt from the advance registrations with and approval by the Competent Authority as required by Article 22(1) of the Securities and Exchange Act, although such foreign issuers must still comply with the requirements set forth in the FSC’s letter. 

The FSC announced the amendment to the Implementation Rules of Internal Audit and Internal Control System of Financial Holding Companies and Banking Industry (the Implementation Rules”)” to reinforce anti-money laundering and counter terrorism financing ─ The FSC announced the amendment to the Implementation Rules on March 31, 2018.  The highlights of the amendment include: (1) The “head organization” of any large bank having a total asset of NT$ 1 trillion or more shall provide an executive rank officer of an exclusive compliance unit, who may be responsible for anti-money laundering and counter terrorism financing but may not perform any legal duties irrelevant to compliance. (2) The aforementioned large bank shall establish a framework of risk management and monitoring. (3) Banks shall establish an unit with an office in-charge that exclusively perform the duties related to information security. (4) Within 6 months of the promulgation of the amended Implementation Rules, all financial holding companies and banking businesses shall establish an internal reporting system for irregularity and an independent unit at its head organization to accept and investigate such reports. 

The Ministry of Finance (“MOF”) issue administrative interpretation on recognizing goodwill – The MOF specified in a letter dated March 30, 2018 the requirements and the supporting documents to be submitted in order for company to recognize business goodwill as result of a merger.  The MOF indicates in principle that when a company conducts a merger or acquires the business of another enterprise pursuant to the Business Mergers And Acquisitions Act or the Financial Institutions Merger Act with a reasonable business purpose, it is entitled to recognize the business goodwill and amortize it over a period of time as provided by law if the cost of the merger exceeds the fair value of the net identifiable assets, provided that the company demonstrates the reasonable business purpose of the merger, the cost of the merger and submits the documents supporting the fair value of the net identifiable assets in addition to filling out the Goodwill Verification Checklist. 

The Ministry of Finance issued an administrative interpretation on the five year period of exemption from business income tax exemption by participating in public infrastructure projects ─ The MOF issued a letter on February 28, 2018 regarding the rule that the taxable income of a private enterprise who participates in public infrastructure projects is entitled to an exemption from business income tax for a 5 year period.  The MOF indicates that the term “the year with taxable income” referred to in the Act for Promotion of Private Participation in Infrastructure Projects and the Statute for Encouragement of Private Participation in Transportation Infrastructure Projects shall mean the year when the income deprived by a private enterprise from the major public or transportation infrastructure project that it has participated exceeds the losses incurred in the preceding 10 years as determined by the tax collection authority-in-charge pursuant to the proviso of Article 39(1) of the Income Tax Act. 

Taiwan Intellectual Property Office (“TIPO”) announced the “Operational Procedures on Public Hearings for Patent Invalidation Case” to improve the patent invalidation examination–having considered the international trend demonstrated by the practice of major countries that patent invalidation examination is made by holding public hearing, TIPO announced the “Operational Procedures on Public Hearings for Patent Invalidation Cases” on March 30, 2018, which was formally implemented on the same date in accordance with the relevant provisions of the Administrative Procedure Act. Some highlights of the rules are as follows: (1) The parties of an invalidation examination proceeding may apply for a hearing, and TIPO may also hold an ex officio hearing if it deems necessary. (2) Hearings shall be conducted by three or more examiners in a collegial system. (3) TIPO shall notify the parties in writing 30 days prior to the hearing date and publish the notice at its office or on its website. TIPO may notify the witnesses or expert witnesses before the hearing if it deems necessary. (4) Hearings are conducted in a public manner in principle. (5) The party of the invalidation examination proceeding may institute an administrative appeal directly pursuant to Article 109 of the Administrative Procedure Law if it is not satisfied with the invalidation examination decision made upon the hearing. 

Introduction of the Amendments of law relating to the Taiwan green  finance being promoted by Taiwan Financial Supervisory Commission

In response to the demand for foreign bank branches to expand their participation in renewable energy industry, offshore wind-power industry and other infrastructures, the Taiwan Financial Supervisory Commission (“FSC”), having evaluated the impact on Taiwan financial market and associated risks factors, amended Article 14 and Article 19-3 of the Regulations Governing Foreign Bank Branches And Representative Offices (hereinafter “the Foreign Bank Regulations”) to appropriately ease the restrictions on the credit limit and the total amount of loans.

Amended Article 14 of the Foreign Bank Regulations provides that the NTD credit that a foreign bank branch may extend to a same juristic person, same related party or the same affiliates should not exceed NTD 7 billion respectively or twice the amount of foreign bank branch’s net worth.  Amended Article 19-3 of the Foreign Bank Regulations provides that when a foreign bank branch’s retail deposit business does not reach the specific thresholds, such branch’s outstanding NTD loans shall not be more than forty (40) times the branch’s net worth after the accounting books are closed at the end of the previous fiscal year.

Offshore wind-power building is long-term project financing. While foreign banks generally have abundant knowledge and experience in long-term project financing, it is relatively more difficult for foreign bank branches to collect NTD savings since they operate fewer places of business in Taiwan.  Therefore, the FSC enacted Regulations Governing Issuance of Bank Debentures denominated in NTD by Foreign Bank Branches (hereinafter the “Bank Debentures by Foreign Bank Branches Regulations”) to enable foreign bank branches to issue Bank Debentures denominated in NTD to make up for the shortfall of medium and long-term funding.  The FSC also looks forward to introducing foreign banks’ knowledge and experience in long-term project financing regarding offshore wind-power building and promoting the cooperation of foreign banks and local banks.  As a result, the finance demand of Green Energy could be met.

The following are some of the highlights in the Bank Debentures by Foreign Bank Branches Regulations:

  1. The term “Bank Debentures” as used in the Regulations shall mean general Bank Debentures, subordinated Bank Debentures and other Bank Debentures approved by the competent authority. Convertible Bank Debentures, exchangeable Bank Debentures are exclusive.

  2. Proceeds from the issue shall be applied to financing investment in renewable energy industry, offshore wind-power industry and other infrastructure within Taiwan and shall not be converted into foreign exchange for using.

  3. The Bank Debentures by foreign bank are restricted to be offered to professional investors only.