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Tax
1. No Levy of Securities Transaction Income Tax
The Legislative Yuan passed three readings of the amendments to the Income Tax Act on November 17, 2015, and such amendments have been announced by the President on December 2, 2015. The key change is that capital gains derived from the securities transactions are exempted from income tax while losses on securities transactions may not be deducted from the total amount of income. In addition, the Income Basic Tax Act (i.e., Alternative Minimum Tax) only requires profit-seeking enterprises to include capital gains from the securities transactions into the sum of the taxable income for income basic tax purpose.
Reported by:Kang-Shen Liu / Mark Chen
Labor
2. Amendments to the Labor Standards Act
On November 27, 2015, the Legislative Yuan passed its three readings of the amendment to the Labor Standard Act, which is subject to further official announcement by the President. (Normally, the announcement will be soon and no further change will be made.) We summarize the amendment below:
(1) Non-compete agreement
The amendment adds a new Article, 9-1, which restricts any non-compete agreement following termination of employment, unless the following requirements are met:
a. The employer has justifiable business interests to be protected by the agreement;
b. The position or duty of the employee has access to or use of trade secrets of the employer;
c. The period, area, the scope of occupational activities and the scope of potential future employers of the non-compete shall not exceed the reasonable scope and shall be justifiable; and
d. The employer shall make reasonable compensation for the losses arising from the employee's non-compete conduct.
The compensation shall not include the payment during the employment period. Any agreement in violation of the above is considered void. The period of the non-compete agreement shall not exceed two (2) years. Any term longer than two (2) years shall be shortened to two (2) years.
The amendment specifically imposes restrictions on non-compete covenants, which confirms the courts' similar position during past years.
(2) Change of job scope
The amendment adds a new Article, 10-1, which provides that any change of the employee's job scope shall not be contrary to the employment contract and shall meet the following principles:
a. Unless otherwise provided by laws, the change shall be necessary for business operations, and shall not contain any improper motivation or purpose;
b. There shall be no adverse change to the wage and other terms and conditions of the employee;
c. The employee shall be physically and technically competent with the new job;
d. If the new work premises are too far away from the original ones, the employer shall provide necessary assistance; and
e. The employer shall take into consideration the living interests/benefits of the employee and his/her family.
(3) Restriction to minimum service period of employment
The amendment adds a new Article, 15-1, which restricts any agreement on the minimum service period of employment unless it falls under any of the following:
a. The employer provides the employee with professional training and pays for such training; or
b. The employer provides reasonable compensation for the employee to comply with the minimum service period agreed upon by both parties.
The minimum service period agreement shall take into account the following, and shall not be beyond reason:
a. The terms and costs of professional training provided by employer.
b. The possibility of substitution of the employee for the same or similar position.
c. The amount and scope of compensation provided by the employer.
d. Other reasonable matters affecting the minimum service period agreement.
The agreement is void in case of any violation of these. If the agreement is terminated before the expiration of the minimum service period for the reason not attributable to the employee, the employee shall not be liable for any breach of the minimum service period agreement or training expenses.
Reported by: David Tsai / Robin Huang
Finance
3. Amendment to the Financial Institutions Merger Act
On November 24, 2015, the Legislative Yuan passed three readings of an amendment to the Financial Institutions Merger Act ("FIMA"). We summarize the key points of the amendment below:
(1) The FIMA will apply to financial holding companies and no longer apply to credit departments of farmers associations and fishers associations. The articles related to the handling of distressed credit departments of farmers associations and fishers associations will be removed.
(2) In addition to newly issued shares, surviving institutions or newly incorporated institutions may use shares of other institutions, cash or other property of different types or in different proportions as consideration to the shares held by the shareholders of the dissolved institutions.
(3) Merger of financial institutions shall be publicly announced for five (5) consecutive days at minimum in newspapers, on the Internet or by other methods designated by the competent authority.
(4) Financial institutions creating a trust exclusively for repaying debts or proving that the merger will not adversely affect creditors to exercise their rights may claim the merger against creditors, fund beneficiaries, and rights holders of insurance contracts, etc.
(5) To be in line with the general procedure of bankruptcy and reorganization, for handling of non-performing loans of financial institutions, the following provisions under the FIMA will be removed: (i) asset management companies shall be selected as bankruptcy administrators or reorganizers; and (ii) exercise of claims shall not be subject to the restrictions under the Company Act regarding reorganization and the Bankruptcy Act.
(6) Given the principle of fair taxation, the following provisions under the FIMA will be removed: (i) for asset management companies to handle non-performing loans of financial institutions, the business tax rate of banks shall apply; and (ii) losses from sale of non-performing loans may be carried forward over five years.
(7) To handle non-performing loans of financial institutions, financial institutions may engage an impartial third party to conduct public auction.
(8) Amendments to tax incentives related to mergers of financial institutions, including (i) exemption of securities transaction tax and business tax, (ii) land value increment tax of lands owned by dissolved institutions may be deferred and paid when the lands are further transferred, (iii) the period to amortize the goodwill generated through mergers will be amended from five (5) years to 15 years and (iv) if certain qualifications are satisfied, the surviving institution or newly incorporated institution may succeed the tax incentives under the merged property or business which has been obtained but not expired or deducted.
Reported by: Stacy Lo / Mark Chen
4. Draft amendment to the "Regulations Governing Internal Operating Systems and Procedures for Banks Conducting Financial Derivatives Business"
The Financial Supervisory Commission ("FSC") announced the draft amendment to the "Regulations Governing Internal Operating Systems and Procedures for Banks Conducting Financial Derivatives Business" on November 12, 2015. We summarize below:
(1) The qualification for professional institutional investors will be raised from total assets of more than NT$50 million (around US$1,666,667) to more than NT$100 million (around US$3,333,333). For professional institutional investors who have engaged in existing derivatives transactions before the effective date of the amendment and their total assets do not exceed the NT$100 million threshold, such transaction will not be affected due to not meeting the qualifications and can be handled to maturity.
(2) Banks shall consider the transaction amount of the client with other financial institutions and the client's risk tolerance capability when granting or extending the amount limit for the client to conduct derivatives transactions. Banks shall also establish a system for initial margin and margin call based on clients' transaction purposes.
(3) Banks shall strictly comply with the self-regulatory rules stipulated by the Bankers Association.
Reported by: Stacy Lo / Angela Lin
5. Amendment to the Certain Amount under Paragraph 2, Article 29 of the Financial Consumer Protection Act
On November 16, 2015, the FSC announced a draft amendment to "the Certain Amount under Paragraph 2, Article 29 of the Financial Consumer Protection Act." We summarize the key points of the amendment below:
(1) The scope of investment-type financial products or services excludes the gold business, securities investment trust funds, and futures trust funds traded on the exchange or OTC market; and
(2) The certain amount for the non-investment-type financial products or services provided by the electronic payment institutions which engage exclusively in such businesses is NT$100,000.
Reported by: Stacy Lo / Mark Chen
Foreign Affairs
6. Enforcement Rules of the Act on Execution of Convention
The Ministry of Foreign Affairs ("MFA") promulgated the "Enforcement Rules of the Act on Execution of Convention" on November 20, 2015, which we summarize below.
(1) The MFA typically is in charge of execution of convention. However, when a convention involves technical or professional issues, other agencies may be in charge of such convention if the MFA or the Executive Yuan agrees otherwise.
(2) Before reaching conclusions on draft conventions, the in-charge agency shall explain to and communicate with stakeholders or hold seminars or public hearings to gather opinions from people, scholars or professionals and inform the Legislative Yuan of the progress if such convention relates to economic growth or other important national matters.
(3) If a convention relates to economic growth or other important national matters, the in-charge agency shall be based on its assessment preparation, response plans, remedial actions, the budget estimation for implementation of the convention and how to fund the budget when the Executive Yuan forwards the signed convention to the Legislative Yuan for review and consideration.
Reported by:Kang-Shen Liu
National Health Insurance
7. Raise of collection standard of the supplementary national health insurance premiums
On November 9, 2015, the Ministry of Health and Welfare announce a draft amendment to "Regulations Governing the Deduction and Payment of the Supplementary Insurance Premium of the National Health Insurance", which raises the minimum single payment subject to supplementary insurance premiums from NT$5,000 to NT$20,000.
Reported by:David Tsai / Robin Huang
Tender Offer
8. Draft amendment to the "Regulations Governing Public Tender Offers for Securities of Public Companies"
In order to allow a target company to have sufficient time to respond to a hostile takeover, the FSC announced the draft amendment to the "Regulations Governing Tender Offers for Securities of Public Companies" on November 13, 2015. The draft amendment extends the period for the target company to respond to the tender offer from "7 days" to "10 days", and also extends the minimum tender offer period from "no less than 10 days" to "no less than 20 days."
In addition, to be in line with the amendment to Article 43-1, the Securities and Exchange Act provides that any person who makes a tender offer to purchase beneficial securities of a real estate investment trust ("REITS") under the Real Estate Securitization Act can do so only after filing with the FSC and making a public announcement. The FSC announced the draft "Regulations Governing Public Tender Offers for Real Estate Investment Trusts" accordingly, which provide scope, conditions, period, related parties and particulars for filing and public announcement of such tender offer, as well as percentage and exceptions for mandatory tender offers for REITS and information to be published in the prospectus.
Reported by:Mike Lu / Angela Lin
M&A
9. The draft "Regulations Governing the Establishment of Special Committee for Merger by Public Companies and Relevant Matters" announced by the FSC
The newly amended Article 6 of the Merger and Acquisition Act requires that a public company shall establish a special committee to review fairness and reasonableness of a transaction in the case of M&A which will take effect from January 8, 2016. To cope with such change, the FSC announced the draft "Regulations Governing Establishment of Special Committee for M&A by Public Companies and Relevant Matters" ("Regulations") on November 24, 2015. We summarize below:
(1) The public company shall establish a special committee before it holds a board meeting to resolve any M&A. For a company having established an audit committee, functions of the special committee shall be performed by the audit committee in accordance with the "Regulations Governing Exercise of Powers by Audit Committees of Public Companies." Any other matters not provided in the "Regulations Governing Exercise of Powers by Audit Committees of Public Companies" shall be handled in accordance with the Regulations.
(2) The public company shall establish a special committee organizational by-law.
(3) The special committee shall have no less than three (3) members and be composed of independent directors (if any) or members selected by the board. No member in the special committee shall have any relationship with the counterparty of the merger transaction or have any conflict of interest.
(4) The special committee shall perform its functions with fiduciary duty and duty of care of a good administrator.
(5) The special committee shall engage independent experts to provide opinions when reviewing the M&A. Independent experts refer to CPAs, lawyers or securities underwriters who shall be selected with consent of one-half or more of all special committee members.
(6) 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 is allowed. Members shall clearly state whether he/she approves or objects to the proposal and no abstention is allowed. The company shall publish the resolution of the board meeting and the special committee's meeting within two (2) days after the board resolution on the website designated by the competent authority for publication and indicate name and reason of directors or special committee's members who objected to the M&A.
(7) The special committee may invite independent experts, managers from relevant departments, internal auditors, CPAs, lawyers or other personnel to attend the meeting to provide relevant information if so required.
(8) Anyone participating in or has acknowledge of the M&A plan shall provide a non-disclosure undertaking in writing.
(9) Minutes of the special committee's meeting shall be properly and perpetually kept. The entire proceeding of the special committee's meeting shall be audio or video recorded and such record shall be kept for no less than five (5) years. If the special committee's meeting was held through a video conference, the video information shall constitute part of meeting minutes and shall be properly and perpetually kept.
Reported by:Mike Lu / Angela Lin
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2015-12-08
