The Measures for Administration of Individual Income Tax on Income Derived from Equity Transfer (for Trial Implementation)

On December 7, 2014, the State Administration of Taxation has issued the Measures for Administration of Individual Income Tax on Income Derived from Equity Transfer (for Trial Implementation) (the "Measures"). The Measures, once taking into effect on January 1, 2015, will abolish the Notice of the State Administration of Taxation on Strengthening Administration of the Collection of Individual Income Tax on Income Derived from Equity Transfer (Guo Shui Han [2009] No. 285), and the Announcement of the State Administration of Taxation on Issues Relating to Determining Verifying the Taxation Basis for Individual Income Tax on Income Derived from Equity Transfer (Announcement of the State Administration of Taxation [2010] No. 27) (the “Announcement”).

The Measures have specified considerable rules regarding individual income tax on income derived from equity transfer which are listed as follows, among others:

1. Overview

1.1 Proper Taxpayer

Pursuant to Article 2 and Article 5 of the Measures, individual shareholders who invest equities or shares into enterprises or organizations established within the territory of China, excluding sole proprietorships and partnerships, shall be regarded as the proper taxpayer. During transfer transactions, the equity transferor is regarded as the tax payer and the transferee is deemed as the withholding agent.

1.2 Competent Tax Authorities

Pursuant to Article 19 of the Measures, competent tax authorities for the individual income tax (“IIT”) on the income derived from equity transfer by individuals are local tax authorities where the invested enterprise is located.

1.3 Circumstances of Equity Transfer (Scope of Tax Collection)

Pursuant to Article 3 of the Measures, the equity transfer means the individual transfers his/her equity to other individuals or legal entities, specifically includes:

a. The sale of equity;
b. The repurchase of equity by enterprises;
c. When the issuer initiates the public offering of shares, shareholders of the invested enterprise also sell their shares to the investors by way of the public offering;
d. The equity is compulsorily transferred by judicial or administrative authorities;
e. Equity investment or any non-monetary transactions;
f. The equity is used for clearing off debts;
g. Other equity transfer conducts.

1.4 Calculation of Taxable Income of Equity Transfer

Pursuant to Article 4 of the Measures, the IIT shall be calculated and paid in the name of "asset transfer income" based on the taxable income during the equity transfer. The taxable income refers to the balance of "equity transfer income" minus "original value of equity and reasonable cost". "Reasonable cost" refers to relevant taxes paid to competent tax authorities for the equity transfer.

2. Identification of Original Value and Equity Transfer Income

2.1 Original Value

Pursuant to Article 15 of the Measures, the original value of the transferred equity shall be identified through the following methods:

2.2 Equity Transfer Income

Pursuant to Article 7, Article 8 and Article 9 of the Measures, the "equity transfer income" refers to the economic income acquired in such forms as cash, physicals and securities for equity transfers, which also includes liquidated damages, compensation, as well as other payments, assets, and interests under other items. Moreover, the subsequent income acquired by a tax payer under a contract after meeting the agreed terms shall also be regarded as the equity transfer income.

3. Income Determined by Competent Tax Authorities

3.1 Pursuant to Article 11 of the Measures, competent tax authorities may determine the equity transfer income under any of the following circumstances:

a. The declared equity transfer income is obviously low and unjustified;
b. Relevant taxes have not been declared before the deadline and such taxes are still not declared after tax authorities have ordered to declare taxes within a limited period;
c. The transferor fails to or refuses to provide information of the equity transfer income;
d. Other circumstances under which the equity transfer income shall be determined.

3.2 Pursuant to Article 14 of the Measures, competent tax authorities shall adopt the following methods in turn to determine the equity transfer income:

a. Confirmation by Net Asset
b. The method of analogue
c. Other reasonable methods

3.3 Pursuant to Article 12 and Article 13 of the Measures, the circumstance that “the equity transfer income is obviously low” is defined in order to prevent the tax avoidance during the equity transfer, which is clarified as follows:.

a. Equity Transfer Income is Obviously Low Without Reasonable Causes (Article 12)

i. The declared equity transfer income is lower than the net asset share corresponding to the equity, amongst which, if the invested enterprise has land use rights, buildings, unsold real properties of real estate companies, intellectual property, right of prospecting, mining rights, equity and other assets, the declared equity transfer income is lower than the fair value of the net asset fair value share corresponding to the equity;
ii. The declared equity transfer income is lower than the initial investment cost or lower than the price and related taxes paid for the acquisition of the shares;
iii. The declared equity transfer income is lower than the equity transfer income of the same shareholders or other shareholders of the same company under the same or similar conditions;
iv. The declared equity transfer income is lower than the equity transfer income of enterprises in the similar industry under the same or similar conditions;
v. Unjustified transfer of equity or shares without consideration;
vi. Other circumstances determined by competent tax authorities.

b. Equity Transfer Income is Obviously Low With Reasonable Causes (Article 13)

i. Valid documents can be provided to prove that invested enterprises transfers the equity at a low price because the corporate production and operation are significantly affected due to national policy adjustments;
ii. Inheritance, or equity transfer to spouse, parents, children, grandparents, grandchildren, brothers and sisters who can provide valid legal proof of the identity and relationship, or equity transfer to financial supporters of the transferors who undertake direct duties of the financial support;
iii. Internal transfer of equity held by enterprises' employees, which cannot be transferred externally and have relevant documents that can fully prove the reasonability and the authenticity of the transfer price;
iv. Any other reasonable circumstances where the transferors and transferees can provide valid certificates to prove the reasonability.

4 Timeline of IIT Payment and Submission of Documents

4.1 Timeline of Tax Payment

Pursuant to Article 6 of the Measures, the withholding agent/transferee shall report the relevant information to competent tax authorities within five working days after the relevant equity transfer agreement is signed.

4.2 Submission of Documents

Pursuant to Article 21 of the Measures, the following documents shall be submitted competent tax authorities for the tax payment (withholding) declaration:

a. The equity transfer contract (agreement);
b. The identification certificates of transferors and transferees of the equity transfer;
c. Asset value appraisal reports on net assets or land/real properties issued by qualified agencies if required according to relevant provisions;
d. Documents proving that the tax calculation basis is obviously low for certain reasonable causes;
e. Other documents required by competent tax authorities.

Comments

In general, compared to the Announcement, the Measures provide a more comprehensive guideline for the Chinese tax authority to supervise the payment of IIT during the equity transfer cases in respect of the following critical elements:

1) Clarify the scope of equity share, equity share income and tax payment;
2) Identify the equity transfer income and incorporate the subsequent income acquired by a tax payer under a contract after meeting the agreed terms as the equity transfer income;
3) Specify the circumstance “the equity transfer income is obviously low” and the exception;
4) Establish methods for competent tax authorities to determine the equity transfer income;

Detailed and clear rules regulated in the Measures, especially the elements mentioned above, will definitely facilitate the supervision of IIT payment by the Chinese tax authority in order to prevent the tax avoidance of individuals during the equity transfer transactions.

However, the Measures still have certain unclear sectors which need to be improved regarding the IIT derived from the equity transfer as follows:

1) During non-monetary transactions such as the investment with equity as one of circumstances of equity transfer, in general, there is no cash income incurred. As a result, it will be difficult to determine the income since the anticipated revenue will normally be different from the actual income. In practice, under certain circumstances, there still exist difficulties to determine the income.

2) With regard to the value adjustment mechanism (“VAM”), although the Measures regulates the subsequent income acquired by a tax payer under a contract after meeting the agreed terms as the equity transfer income in Article 9, which is one type of VAM, other types of VAM is still not taken into account. Therefore, the IIT involving other types of VAM needs to be further clarified.

3) With regard to “reasonability” in the item 4 of Article 13, it is still unclear what situations the “reasonability” shall prevail.

Therefore, no matter the transferor, the transferee or the invested enterprises shall keep a close eye on the Measures and the following improvements or adjustments.

by UBILLA & CIA

Key Issues Regarding the Administrative Measures on the General Anti-Avoidance Rule (for Trial Implementation)

On December 2, 2014, the State Administration of Taxation (“SAT”) issued the Administrative Measures on the General Anti-Avoidance Rule (for Trial Implementation) (the “Measures”), which will be effective on February 1, 2015.

Although principles on the application of general anti-avoidance rules (“GAAR”) were included in Corporate Income Tax Law of People’s Republic of China (“CIT Law”), Detailed Implementation Rules of CIT Law and the Implementation Measures on Special Tax Adjustments (for Trial Implementation), specific administrative measures regarding GAAR application such as the operation procedures and enforcement standards were absent for a long time until the release of the Measures.

In general, the Measures further regulate and clarify various issues regarding GAAR application such as the applicable scope, features of tax avoidance arrangements, adjustment methods, working procedures, dispute resolutions when applying GAAR, etc.

The main contents in detail are clarified as follows:

1. Applicable Scope (Article 2 and Article 3)

The Measures shall be applicable when Chinese tax authorities implement special tax adjustments towards the corporate tax avoidance arrangements conducted by companies in order to obtaining Tax Benefits (defined below) without reasonable commercial purposes.

Tax Benefits refer to the reduction, exemption or delay of corporate income tax payments.

According to Article 120 of CIT Law Detailed Implementation Rules, “without reasonable commercial purposes” refer to the key purposes of obtaining the aforementioned Tax Benefits.

On the other hand, the Measures shall not apply to the following circumstances:

a. Arrangement irrelevant to cross-border transactions or payments.
b. Illegal tax behaviors such as avoidance of paying taxes, avoidance of paying unpaid taxes, tax fraud, refusal of paying tax, and issuance of forged invoices.

2. Exception of Application of the Measures (Article 6)

The corporate tax avoidance arrangements which are within the range of other special tax adjustments including transfer pricing, cost sharing, controlled foreign corporations, thin capitalization shall first apply to relevant laws regulating special tax adjustments, such as Section 6 of CIT Law.

On the other hand, the corporate tax arrangements which are within the range of execution of taxation agreements such as beneficial owner and interest restriction shall first apply to relevant rules of execution of taxation agreements.

Note: The Measures should only be applicable if a tax arrangement cannot be regulated by any of aforementioned special tax adjustments. In other words, the Measures shall be the last resort to counter tax avoidance when all other anti-avoidance tools are exhausted.

3. Features of Tax Avoidance Arrangements (Article 4)

In order to facilitate the assessment of Chinese tax authorities and the self-assessment of involved companies, the Measures specify the following major features of “tax avoidance arrangements”:

a. The sole purpose or primary purpose is to obtain Tax Benefits;
b. Obtaining Tax Benefits by certain means, the form of which is compliant with the tax laws but inconsistent with the economic substance.

4. Tax Adjustment Methods (Article 5)

Chinese tax authorities shall implement special tax adjustments on the basis of “ similar arrangements with reasonable commercial purposes and economic substance” and in accordance with the principle that "the substance is superior to the form". Special adjustment methods shall include:

a. Re-characterizing the entire or part of transactions of the tax arrangements;
b. In terms of tax, denying the existence of a transaction party for tax purposes, or deeming the transaction party and other transaction parties as the same entity;
c. Re-characterizing the related income, deductions, tax incentives and overseas tax discount or exemption, or reallocating them among transaction parties;
d. Any other reasonable methods.

5. Information Provided for Investigation of Tax Avoidance Arrangements (Article 11)

Companies being investigated for the tax avoidance arrangements shall provide the following documents within 60 days after receiving inspection notice from Chinese tax authority if they consider that their arrangements shall not be regarded as tax avoidance arrangements:

a. Background documents for the arrangements;
b. Documents for the commercial purposes of the arrangements;
c. Information on the internal decision-making and management of the arrangements, such as board resolutions, memorandums and emails;
d. Detailed transaction information relating to the arrangements, such as contracts, supplemental agreements, and payment receipts or payment collection;
e. Communication information with other transaction parties;
f. Other documents which may prove that their arrangements shall not be regarded as tax avoidance arrangements;
g. Other documents considered necessary by Chinese tax authorities.

Companies that cannot submit such documents on time due to special circumstances may apply to the Chinese tax authorities for an extension of submission timeline in written form. However, even if the application is approved, the extended period for submission shall not exceed 30 days.

Note: The purpose of timeline requirements mentioned above is, on one hand, to ensure Chinese tax authorities to handle GAAR related cases efficiently and, on the other hand, to improve tax related risk control measures and internal tax related rules compliance of relevant companies.

6. Working Procedures (Article 8, Article 15 and Article 16)

Besides the substantial regulations mentioned above, the Measures also specify relevant working procedures which cover all phases of GAAR administration, including admission, investigation and the closure of a case, as well as procedural rules which set out roles and responsibilities of Chinese tax authorities in different levels in each phase to ensure transparent and fair implementation of GAAR.

Where the in-charge local tax authority become suspicious of tax avoidance arrangements of one company, it shall report the case upwards through different levels to the provincial tax authority for approval, and then apply to the SAT in order to initiate the investigation process.
During the investigation process, in-charge tax authorities may verify the information provided by relevant companies through on-site investigation, issuing letters to request assistance of companies for the investigation, or utilizing public information, etc.

In-charge local tax authorities shall examine relevant documents obtained during the investigation process within 9 months after the approval of case filing, comprehensively judge whether relevant companies conduct tax avoidance arrangements, form opinions and reasons for "plans not to adjust" or "preliminary adjustment plans", and apply to the SAT for case closure after reporting such opinions and reasons level by level to the provincial tax authorities for approval.

7. Dispute Resolutions (Article 19 and Article 21)

On one hand, while the companies being investigated disagree with the GAAR assessments made by the in-charge tax authorities, they can apply for legal remedies in accordance with relevant laws and regulations.

On the other hand, if investigated companies consider that the general anti-tax avoidance adjustments made by tax authorities result in the international double taxation or the taxation is incompliant with provisions of tax treaties, investigated companies may initiate the mutual negotiation procedures according to tax treaties and relevant provisions thereof.

Comments

Generally, the Measures provide Chinese tax authorities a detailed guideline for the implementation of GAAR, build up a more transparent and consistent GAAR framework and create more specific practical methods in order to make the tax adjustments and crack down the international tax avoidance arrangements and evasion.

On the other hand, companies, especially multinational corporations, shall pay sufficient attention to the substantial rules and practical procedures in the Measures in order to conduct the proper tax arrangement for the international transactions.

However, as to tax adjustment methods in the Measures, the limitation of “economic substance” still remains ambiguous, which may confuse companies to some extent when they conduct tax arrangements. Therefore, more detailed rules for implementation are expected to facilitate the execution of the Measures in future.

by UBILLA & CIA

New Adjustments on the Catalogue of Investment Projects Approved by the Chinese Government

On October 31, 2014, the State Council issued the Circular on promulgating the Catalogue of Investment Projects Approved by the Government (2014 Version) (the "New Catalogue"), which took effect on the same day. The New Catalogue has superseded the Catalogue promulgated on December 2, 2013 (the "Old Catalogue").

Compared to the Old Catalogue, several changes to the systems of approvals and filing of investment projects have been made in order to simplify the approval and facilitate the investment implementation. According to the statistical data issued by the National Development and Reform Commission (“NDRC”), the investment approval by Chinese authorities in 38 fields has been eliminated or delegated from state level to provincial or local level in total. Combined with the Old Catalogue, the total amount of fields subject to the approval of state level has been reduced by 76% since 2013.

The details of the main changes are highlighted as follows:
1. Elimination of Administrative Approval on Certain Fields

According to the New Catalogue, the government approval of investment in 15 fields is eliminated from the catalogue, including steel, non-ferrous metals, fertilizers, cement, shipping, urban water supply and other urban construction projects. Instead, only filing for record is required for the investment in those fields.

2. Delegation of Administrative Approval Power to Lower Level on Certain Fields

Approval authorities for the investment in several fields have been delegated from the state level to the provincial or local level, including fields of heat power stations, pumped-storage power stations, new general airport projects, the expansion projects of combined military and civilian airports, the exploration of iron mining, new ethylene projects, etc.

Besides the main changes mentioned above, the New Catalogue also adjusted the approval and filing requirements on cross-border investments, as described in the following tables:

a. Foreign Investment

b. Outbound Investment

Comments

The New Catalogue indicates that the Chinese government continues to deepen the reform of the investment system and the administrative examination and approval system in order to streamline administration and delegating powers to lower the requirements effectively transform the government's investment administration functions, and eventually facilitate the execution of investments in and out of China by independent investors. As a result, the Chinese market is likely to further integrate into the global economy.

However, there are still certain issues to be further clarified. Regarding the cross-border investments, relevant rules in the New Catalogue are not clearly consistent with the corresponding rules in other current regulations, such as the Administrative Measures for Approval and Filing of Foreign Investment Projects issued by NDRC on April 8 2014 and the Administrative Measures for Examination and Approval of Outbound Investment Projects issued by MOFCOM on September 2014. Therefore, different rules in different regulations issued by different authorities are expected to be adjusted or modified in order to provide a unified regulatory framework for the implementation of the cross-border investments.

by UBILLA & CIA

New Rules Simplify the Filing and Approval of Outbound Investment Projects

On September 6, 2014, the Ministry of Commerce ("MOFCOM") issued the Outbound Investment Management Rules (the "Rules"), which took effect on October 6, 2014. The Rules have replaced old MOFCOM regulations regarding Chinese outbound investment projects. On April 8 2014, the National Development and Reform Commission ("NDRC") issued a regulation regarding measures for the administrative approval and filing of outbound investment projects (the "Measures"). The Rules together with the Measures provide clear and simplified guidelines for the outbound investment.

The main changes of the Rules are described as follows:

1. Establishment of Filing-Oriented Mechanism

According to old MOFCOM rules on outbound investment projects, the Chinese government applied the "approval-based mechanism" which requested Chinese investors to obtain MOFCOM’s approval for investments over specific amounts, or investments in sensitive countries and regions and fields, etc. The government level (state or provincial) depends on the scale of transactions.

However, the Rules have established the "filing-oriented mechanism" as the main supervision method for normal non-financial sector outbound investment projects, which are only subject to the filing with MOFCOM (where the investment involves centrally-administered state-owned enterprises) or its provincial branches (regardless of the scale of the transaction). As the only exception, non-financial sector outbound investments in "sensitive countries and regions" and "sensitive fields" shall be approved by MOFCOM.

For the purpose of the Rules, the term "sensitive countries and regions" includes countries which have no diplomatic relations with China and the countries or regions which are under sanctions by the United Nations. The term "sensitive fields" includes industries relating to exportation of products and technology which are restricted to export by Chinese government, as well as industries influence interests of more than one country or region.

2. Simplified Application Process

The new Rules significantly simplify the approval and filing procedures, and also reduce the timeline for the review of outbound investment projects.

a. Outbound Investment Filing Process

Under the Rules, the Chinese investor/applicant is required to complete an outbound investment filing form (the "Form") with the company stamp and submit it together with a copy of its business license to the MOFCOM for filing. Except the project subject to the approval by MOFCOM aforementioned, as long as the Form is complete and accurate and all information is true, the project shall be filed by MOFCOM within 3 working days after receiving the application. Meanwhile, the MOFCOM shall issue an outbound investment certificate (the "Certificate") to the applicant.

b. Outbound Investment Approval Process

The Rules have also simplified the MOFCOM approval process for outbound investment projects.

i. For the application documents, the outbound M&A prophase report requested under the old rules has been excluded from required application documents under the new Rules.

ii. For the timeline of approval by the MOFCOM, the new Rules have reduced by 5 days comparing to the old rules. Specifically, the whole process of the approval by MOFCOM (state level) will take within 20 working days in total and the whole process of the approval by MOFCOM (provincial level) will take within 30 working days in total after the approval applications are accepted by the corresponding authorities. The timeline for each scenario has included the time for consulting with the Chinese Embassies and Consulates.

Comments:

The filing-oriented mechanism established under the Rules dramatically has facilitated outbound investment projects for Chinese investors. Meanwhile, the MOFCOM will execute the simplified administrative process of outbound investment projects, regardless of projects for filing or approval. These positive changes will undoubtedly be positive for resolving the conflict between domestic approval process and outbound investment schedule, and to some extent, reduce the uncertainty for outbound investment.

Nevertheless, there are still unclear issues which we wait for further guidance of MOFCOM in order to implement the new Rules completely:

a. It is unclear under the Rules that when the Chinese investors shall apply for the filing or approval of outbound investment projects to the MOFCOM.

b. There are two authorizes governing the outbound investment – MOFCOM and NDRC under the Rules and Measures. As a result, it is unclear whether the application process with MOFCOM requires the implementation of filing or approval of outbound investment by NDRC.

c. The existing regulations on foreign exchange control by State Administration of Foreign Exchange ("SAFE") are too conservative to implement foreign exchange issues relating to the outbound investment projects.

d. The internal communication and coordination among NDRC, MOFCOM and SAFE shall be further improved to establish a complete system for the implementation of outbound investment projects, which is not mentioned in the Rules

The term "sensitive countries and regions" and "sensitive fields" under the Rules are different from those under the Measures. Under the Measures, the term "sensitive countries and regions" includes countries which have no diplomatic relations with China and the countries or regions which are under international sanctions, war or civil strife. The term "sensitive fields" includes basic telecom operation, trans-boundary water-resource development and utilization, large-scale land development, trunk transmission lines, power grids, news media and other industries.

by UBILLA & CIA

Significant Changes to Several Requirements on Registration of Foreign Invested Enterprises in China

On June 17, 2014, the Ministry of Commerce of China issued a notice regarding the improvement of review & approval and statistical rules of foreign investment in China (the “Notice”) and the Notice shall take effect as of its promulgation date. The Notice revised several important issues regarding the review and approval of registration of foreign-invested enterprises (the “FIE”) in China.

The main changes are described as follows:

a. The Notice abolished the requirements and restrictions on percentage of first-time capital contribution, percentage of contribution by cash and the time limit of capital contribution of the FIE. All these issues shall be agreed by investors (including shareholders and promoters) of FIE and regulated in the equity/contractual joint venture contracts or the Articles of Association of the FIE.

b. The Notice abolished the requirement on the minimum registered capital of the FIE, unless otherwise provided by laws, administrative regulations and State Council's decisions for particular industries.

c. The Notice stipulated that the FIE which is involved in particular industries (such as bank, insurance, securities, etc) listed by State Council shall still comply with the current paid-in capital contribution requirements unless relevant laws, administrative regulations and the State Council's decisions relating to those particular industries are amended later.

On the other hand, subscribed capital contribution (other than paid-in capital contribution) shall be applied to the FIE which is involved in normal industries and whether the registered capital is paid will not be examined or verified by the Chinese authorities except for particular industries.

d. The ratio between registered capital and total investment amount of the FIE shall still comply with the requirement regulated in Provisional Regulations on the Ratio between the Registered Capital and Total Investment Amount of Sino-Foreign Joint Equity Enterprises and other relevant provisions.

e. Regarding the foreign investment registration which was approved before March 1, 2014, investors shall perform their capital contribution obligations according to the original contracts and Articles of Association. Any modification to the original arrangement requested by investors shall be reviewed and approved by Chinese commercial departments.

f. Under the subscribed capital contribution requirement, if the capital contribution is actually paid in by investors (including shareholders and promoters) of the FIE, according to the relevant laws and regulations, the FIE shall issue the capital contribution certificates to investors respectively and then submit the copy of the capital contribution certificates (including the company chop) as well as materials relating to the capital contribution to the local Chinese commercial departments for filing within 30 days after the corresponding capital contribution is finished.

Comments

The Notice shall be considered as the corresponding adjustment/amendment to the foreign investment laws and regulations of China in order to keep in line with the new Company Law of China which came into force on March 1, 2014.

According to the amendment in the Notice, the registered capital of the FIE in normal industries will not be necessarily paid by investors within fixed periods after it is established (eg: 3 months and 2 years after the establishment), which will dramatically reduce the cash flow pressure of foreigner investors and increase the flexibility of foreign investment.

The Notice will, through the reform of corporate capital registration and statistical rules, further loosen the control over market entry for foreign investment, lower the access threshold, optimize business environment in China and eventually improve the regulatory efficiency.

by UBILLA & CIA

New Environmental Protection Law will lead China into a Cleaner Future

On April 24, 2014, the Standing Committee of China's National People's Congress (“NPC”) approved to adopt the amendment to the Environmental Protection Law (the new “EPL”), the first amendment since the original EPL was enacted 25 years ago. It will take into effect on January 1, 2015.

With 70 articles compared with 47 in the original EPL, the new EPL begins with the establishment of the environmental protection as the country's basic policy, in order to provide a stronger legal foundation to fight against the environment pollution and improve the environment condition dramatically in China.

The new EPL has established the principles that national economic and social development should be coordinated with environmental protection, and environment and health monitoring, survey and risk assessment mechanism shall be successively improved.

Among others, the new EPL achieves the “reform” of environment protection through the revolutionary changes and improvement in the following main respects:

1. Supervision and Management

1.1. Monitoring and Early Warning System (Article 17 – 18)

The state will establish the monitoring system including the relevant network and stations for the monitoring information sharing and management.

Meanwhile, the state and provincial governments will also authorize their departments or professional institutions to survey and assess the environment condition, and establish the early warning system for resource and environmental carrying capacity.

1.2. Environmental Impact Assessment (Article 19)

Besides the existing environmental impact assessment (the “EIA”) towards projects which may cause impacts on the environment, the new EPL introduces the EIA towards framework/plans for the development and use. Any plans without EIA shall not be implemented and any projects without EIA shall not be constructed.

1.3. On-site Inspection (Article 24 – 25)

The environmental protection departments and environmental monitoring agencies of different levels are empowered to conduct on-site inspections to polluting enterprises. If enterprises discharging pollutants violate the laws and regulations, which have polluted the environment or may cause the pollution, the environmental protection departments will be authorized to distain or seizure heavily polluting facilities and equipments.

2. Prevention of Pollution

2.1. Clean Energy (Article 40)

The State promotes and encourages the clean production and resource recycling. Clean energy shall be the priority to be made use of by enterprises.

Moreover, the technology and equipments to reduce the pollutants and prevent the pollution shall be highly recommended to use.

2.2. Quota on Discharging Major Pollutants (Article 44)

The new EPL establishes the rule of quota on major pollutants. The specific quota on total amount of pollutants discharged is set out by State Council and executed by different levels of governments.

For enterprises discharging pollutants, on one hand, they shall comply with national and local pollutant discharging standards, and on the other hand, they shall also control the total amount of discharged pollutant within the quota allocated to them separately.

If the total amount of discharged pollutants from all enterprises in one area is over the permitted quota or those enterprises don’t achieve the goal of national environmental quality, the environmental protection departments in that area shall suspend the approval of EIA for the application of construction projects with major pollutants discharging facilities.

2.3. Pollutant Discharging License (Article 45)

The new EPL stipulates the system of pollutant discharging license. Without the pollutant discharging license, any enterprises are not allowed to discharge pollutants. Even if one company obtains the pollutant discharging license, the pollutant discharging shall be subject to the requirement of pollutant discharging license.

3. Information Disclosure and Public Participation

Individuals, legal entities and other groups are entitled to obtain the environment information and participate in the supervision of environmental protection based on the new EPL.

3.1. Information Disclosure (Article 53 – 56)

The new EPL specifies the following information which the public may access to:

a. Environment related information published by environmental protection departments of governments of different levels and other environmental monitoring agencies;
b. Information of environmental quality and monitoring to major polluting sources as well as other serious environmental information published by State Council;
c. Environmental condition reports periodically published by environmental protection departments of provincial governments;
d. Information of environmental quality, environmental monitoring, environmental emergencies, information of environmental related administrative permission, administrative penalty, collection of discharging pollutants, as well as information of violation of environmental protection laws and regulations by enterprises or other business groups, disclosed by environmental protection departments of country and municipal levels and other environmental monitoring agencies;
e. Names of major pollutants, discharging methods, concentration and total amount of discharged pollutants, construction and operation of pollution protection facilities published by major pollutant discharging enterprises;
f. EIA report (except contents relating to national secrets or trade secrets) published by approval departments of EIA.

3.2. Whistleblowing System (Article 57)

Individuals, legal entities or other groups are entitled to report the environment pollution and ecological damage activities to environmental protection departments and other environmental monitoring agencies.

Personal information of whistleblowers shall be confidential and benefits of whistleblowers shall be protected.

3.3. Public Interest Litigation (Article 58)

The new EPL expands the participants who may bring the environmental cases into litigation in China.

This new rule will apply to social groups who meet the following requirements:

a. Duly registered with the Civil Affairs Agencies of Municipal People's Governments (with jurisdiction of districts) or above levels;
b. Keeping conducting environmental protection activities for public interests for more than successive 5 years without any illegal record.

However, such groups shall not make profit through the environment pollution litigation.

4. Punishment (Article 59)

The new EPL establishes the a new penalty system, which authorizes environmental protection departments to issue corrective orders and penalties based on the original penalty amount to polluting enterprises on a daily basis, from the day after the corrective order is issued, as long as enterprises fail to bring their operations in line with environmental regulations.

This new penalty system replaces the previous one-time penalty on polluting enterprises, which will definitely increase the cost of enterprises who are conducting the environment pollution activities. As there is no maximum limit for the penalty, environmental protection departments will start to pose an existential threat to non-compliant enterprises.

Comments

The new EPL establishes many strong amendments to improve environmental protection rules and reinforce the power of relevant authorities and public to fight against the pollution in China. It will certainly have a big potential to influence the dynamics of environmental protection in China in a long term.

Despite the positive changes in the new EPL, it still has space to be perfect and will face many challenges as follows:

a. Most of the amendments in the new EPL are related to the pollution prevention and environmental protection, however, as one of the important parts of environmental protection, ecological protection is not concerned enough in the new EPL, which causes the imbalance between these two key issues in the new EPL. Therefore, ecological protection shall be also strengthened in future.

b. Even though the environmental protection departments of governments of different levels are authorized more powers to execute the monitoring and inspection activities, such departments are still tightly controlled by corresponding governments in terms of personnel and finance, which may potentially create difficult conditions for implementation of activities and influence their independence, especially in small places of country level. It is still uncertain to what extent local environmental protection departments will be able to make use of the powerful weapons available to levy real punishments. Moreover, the new EPL doesn’t specify how to define and calculate penalties to the polluting enterprises. Whether a maximum amount of penalty will be considered is still unclear.

c. Even though the participants in the environmental litigation are expanded and social groups are involved in such litigation based on the new EPL, however, possibilities for environmental litigation still remain limited. Since only social groups registered above municipal level will be able to initiate relevant lawsuits, many other active parties engaging in environmental protection activities will be excluded for the litigation, such as many NGOs registered below municipal level and individuals. Therefore, more eligible participants shall be considered in future in order to encourage the legal defense for the purpose of environmental protection.

by UBILLA & CIA

Pilot Programme for Mutual Connection of Transactions in Shanghai and Hong Kong Stock Markets Approved

The China Securities Regulatory Commission (“CSRC”) and the Securities and Futures Commission (“SFC”) have approved, in principle, the development of a pilot programme for establishing mutual stock market access between Mainland China and Hong Kong in order to promote the common development of the capital market. It will take around six months to formally start the Shanghai-Hong Kong Stock Connection (the “Connection”) from the date of announcement on April 10, 2014 to complete the preparation for formal launch.

The pilot programme will operate between Shanghai Stock Exchange (“SSE”), the Stock Exchange of Hong Kong Limited (“SEHK”), China Securities Depository and Settlement Corporation Limited (“China Settlement”), Hong Kong Securities Settlement Company Limited (“HKSSC”).

The main contents of this announcement are described as follows:

1. SSE and SEHK will enable investors to trade eligible shares listed on the other’s stock market through local securities firms or brokers.

2. The Connection will be established based on the existing stock exchange rules and regulations and operational models in each market. There are five principal elements of the Connection as follows:

a. Applicable Transaction, Settlement and Listing Rules

Transaction, settlement arrangements and listed companies will be subject to the regulations and rules of the market where transaction and settlement take place or companies are listed.

b. Settlement

China Settlement and HKSSC will establish a direct link for the cross--boundary settlement. Each of them will participate in the other’s settlement to provide settlement services.

c. Eligible Shares

Shares eligible to be traded under Northbound Link (trading shares in SSE through SEHK) will include all the constituents of the SSE 180 Index and SSE 380 Index, and shares of all SSE-listed companies which have issued both A shares and H shares. Shares eligible to be traded under Southbound Link (trading shares in SEHK through SSE) include all the constituents of the Hang Seng Composite LargeCap Index and Hang Seng Composite MidCap Index, and shares of all companies listed on both SSE and SEHK. The scope of the Connection may be further adjusted after the launch of the pilot programme.

d. Quotas

In the beginning the pilot programme, a maximum cross-boundary investment quota and a daily quota for the transaction are fixed and will be monitored on a “real time” basis. The Northbound Link will be limited to an aggregate quota of RMB 300 billion and a daily quota of RMB 13 billion, and the Southbound Link will be limited to an aggregate quota of RMB 250 billion and a daily quota of RMB10.5 billion. Quotas may be adjusted in future.

e. Eligible Investors

In the beginning of the pilot programme, the SFC requires Mainland investors participating in the Southbound Link to be limited to institutional and individual investors who hold an aggregate balance of not less than RMB 500,000 in their securities and cash accounts.

3. Both the CSRC and the SFC will actively enhance cross-boundary regulatory and enforcement cooperation and will also establish a dedicated liaison mechanism for the Connection to deal with issues during the pilot programme period.

4. Benefits

The Connection is an important step in the opening of China capital market and it will enhance capital market connectivity between Mainland China and Hong Kong, bringing various benefits, including:

a. Enhancing the overall strength of China’s capital markets through a new and significant collaborative mechanism.

b. Further consolidating the position of Shanghai and Hong Kong as financial centers, and enhancing the attractiveness of both markets to international investors.

c. Promoting the internationalization of RMB and development of Hong Kong as an offshore RMB business center.

by UBILLA & CIA

Good News for Employees in Shanghai: Adjustment to the Standards of Certain Livelihood-related Security and Treatment

Shanghai has raised a series of livelihood-related security and treatment standards since April 1st, 2014, including the standards of minimum salary, unemployment insurance benefits, employment subsidies and employment injury insurance as well as disbursement ceiling of the overall fund of basic medical insurance for urban employees

1. Standards of Minimum Salary

The minimum monthly salary has increase from 1,620 Yuan to 1,820 Yuan and minimum hourly salary has increased from 14 Yuan to 17 Yuan since April 1st, 2014
The minimum monthly salary standard is applicable to a full-time employee who provides regular labor services during statutory working hours. Please note that the minimum monthly salary standard does not include social insurance charges and housing fund paid by the employee himself. Besides, overtime pay, allowance for working on the swing shift or night shift, allowance for working under high temperature or low temperature environment and allowance for working in poisonous and harmful conditions are excluded from the minimum monthly salary standard.
The minimum hourly salary standard is applicable to a part-time employee. Part-time employment refers to the employment in which the wage is paid on an hourly basis, and the average working hours of an employee with the same employer are less than four hours each day, and the total working hours of such employee are less than twenty-four hours each week. The minimum hourly salary standard does not include social insurance charges and housing fund paid by the employee himself.

2. Standards of Unemployment Insurance Benefits

Standards of unemployment insurance benefits are determined by the continuous payment period and the age of the unemployed which are currently divided into three levels. After the adjustment, three levels of unemployment insurance benefits standards for the first 12 months are increased to 1,065 Yuan per month, 1,120 Yuan per month and 1,170 Yuan per month respectively; unemployment insurance benefits standards for the second 12 months are 80% of those for the first 12 months and the minimum standard shall be about 10 Yuan higher than the subsistence allowances for urban residents in Shanghai.

3. Standards of Employment Subsidies

According to the adjustment, living allowance for youth on employment training has been increased from 1,296 Yuan per month to 1,456 Yuan per month; employment allowance for laid-off workers with agreement on reservation of social insurance and self-employment allowance for the older unemployed have been increased from 810 Yuan per month to 910 Yuan per month.
Meanwhile, the subsidy standard for employers hiring identified local unemployed who have difficulties in finding jobs has been increased from 13,000 Yuan to 16,000 Yuan and the subsidy standard for employers hiring identified laid-off workers with agreement on reservation of social insurance who have difficulties in finding jobs has been increased from 6,500 Yuan to 8,000 Yuan

4. Standards of Employment Injury Insurance

Three standards regarding employment injury insurance has been raised.

a. improvement in the disability allowance enjoyed by employees who have first-degree to fourth-degree of disability caused by employment injury:
first-degree disability: an increase of 310 Yuan per month;
second-degree disability: an increase of 290 Yuan per month;
third-degree disability: an increase of 280 Yuan per month;
fourth-degree disability: an increase of 260 Yuan per month.

b. improvement in nursing fees for injured employees who are unable to look after themselves:
completely unable to look after themselves: an increase of 170 Yuan per month;
mostly unable to look after themselves: an increase of 130 Yuan per month;
partly unable to look after themselves: an increase of 100 Yuan per month.

c. improvement in pensions for dependents whom the employees died in course of duty have: an increase of 70 Yuan per person per month.

5. Disbursement Ceiling of the Overall Fund of Basic Medical Insurance for Urban Employees

Disbursement ceiling of the overall fund of basic medical insurance for urban employees for the medical care year of 2014 (from April 1, 2014 to March 31, 2015) has been increased from 340,000 Yuan to 360,000 Yuan. 80% of the medical costs surpassing the disbursement ceiling is still paid by local additional medical insurance fund. Corresponding adjustments have also been made to disbursement ceiling of the overall fund of medical insurance for urban floating employees and town employees.

The standards of livelihood-related securities and treatment are tied to the vital interests of the people. Therefore, the above-mentioned improvements are really good news for employees, especially for those with low incomes.

by UBILLA & CIA

New Amendment of Company Law of PRC Simplifies the Establishment of A Company in China

On December 28, 2013, the Standing Committee of National People's Congress made a decision to amend the Company Law of PRC and the new amendment (the “Amendment”) will take effect on March 1, 2014.

The Amendment abolishes several core requirements for the company establishment in China, including the paid-in capital, minimum of registered capital, installment of registered capital contribution, restriction on percentage of contribution by cash, capital verification, etc., which involves a paradigm change in Chinese corporate law and will significantly facilitate and simplify the procedure to incorporate companies in China.

The main changes are as follows:

1. Paid-in Capital

Paid-in capital shall not be included in the business license of a Chinese company. It means that the injection of capital contribution by shareholders is not required for the establishment of a Chinese company, except as prescribed in specific laws and regulations.

Notwithstanding this, each shareholder shall take limited liability to any third party based on its subscribed capital contribution to the company.

2. Minimum Registered Capital

The requirement of a minimum amount of registered capital is abolished. After the Amendment is effective, there will be no requirement on such a minimum registered capital.

Therefore, theoretically, a limited liability company can be established with its registered capital of RMB 1 and a joint stock limited company can be established with its registered capital of RMB 2 (at least 2 shareholders), as long as each shareholder subscribes its shares according to the articles of association of the company in general.

3. Installment of Registered Capital Contribution

The requirement relating to the payment of installments of registered capital contribution (at least 20% for the first installment and balance within 2 years or 5 years for the investment company) is abolished.

4. Exception Regarding Paid-in Capital, Minimum of Registered Capital and Installment of Registered Capital Contribution

The Amendment stipulates that if the paid-in capital, minimum amount of registered capital and installment of registered capital contribution are prescribed in other specific laws and regulations, such provisions shall be followed.

The exception mentioned above mainly refers to the corresponding requirements on security companies in Security Law, commercial banks in Commercial Bank Law, insurance companies in Insurance Law and international freight forwarding companies in Regulations on Management of International Freight Forwarding Business.

5. Percentage of Cash Contribution to A Limited Liability Company

The restriction on percentage of cash contribution to a limited liability company (at least 30%) is abolished.

Therefore, it will become feasible that one shareholder contributes up to 100% to a limited liability company in the form of intellectual property or real property.

6. Capital Verification for a Limited Liability Company

The capital verification for a limited liability company by a qualified institution is abolished.

Therefore, the capital verification report will not be required for the establishment of a limited liability company.

7. Restriction on the Offering Shares to Third Parties by A Joint Stock Limited Company

Each promoter of a joint stock limited company to be established by promotion means shall subscribe its shares and then pay its shares according to the articles of association. Even though the time limit of contribution/payment is not required, the Amendment stipulates that the promoters cannot offer shares to any third party before paying their subscribed shares.

8. Decrease of Registered Capital

The provision that the registered capital of a company shall not be less than the required minimum amount after the capital decrease is abolished.

Comments

The Amendment has made significant changes in the following three aspects:

a. Change the paid-in capital registration system to subscribed capital registration system;
b. Reduce the threshold of registered capital for the company establishment;
c. Simplify the registration procedure and application documents for the company establishment.

Therefore, these changes are expected to facilitate and promote investment and, therefore, encourage innovation and entrepreneurship.

Moreover, all aforementioned changes in the Amendment also apply to the foreign-invested companies (including equity joint venture, contractual joint venture and wholly foreign-invested companies), which will also encourage foreign investment in China.

by UBILLA & CIA

Key Issues regarding the Third amendment to PRC Trademark Law

On August 30, 2013, the Standing Committee of the National People’s Congress issued the Third Amendment to PRC Trademark Law (the "Amendment"). The new Trademark Law based on this Amendment will enter into force on May 1, 2014.

In general, the Amendment improves the legal framework regarding critical issues such as trademark application, review and opposition, trademark use, assignment and extension, trademark infringement and punishment, etc. The main changes in detail are clarified as follows:

1. Increase of "Good Faith" Principle (Article 7 of new Trademark Law)
The Amendment introduces the "good faith" principle (or "honest and trust principle") to the Trademark Law on trademark registration and use. This principle is regarded as the safeguard to provide the final remedy for cases that cannot be tackled through the existing trademark regulations.

2. Expansion of Trademark Form for Registration (Article 8 of new Trademark Law)
The Amendment adds "sound" as one form of trademark for registration.

3. Well-Known Trademark (Article 14 of new Trademark Law)
First, the Amendment specifies the elements which shall be considered in order to define a well-known trademark, including i) trademark popularity to the public; ii) how long the trademark has been used; iii) duration, extent and scope of trademark advertisement; iv) records of trademark protection; v) others relevant elements.

Second, the Amendment explicitly prohibits the manufacturer or business operators to use the term "well-known trademark" on products, packages or containers of products, or to use for advertising, exhibition or any other business activities. Anyone who violates this rule shall be liable for monetary penalties which are equivalent to RMB 100,000.

4. Restraint of Trademark Squatting (Article 15 of new Trademark Law)
The Amendment explicitly prohibits representatives, trademark agents, and those who have business relationship with the trademark owners to register the identical or similar trademark on same or similar products.

5. Requirements to Trademark Agencies (Article 19 of new Trademark Law)
The Amendment creates rules for the first time to regulate the registration activities of trademark agencies. Trademark agencies shall be responsible to comply with the "good faith" principle, relevant laws and regulations of China, as well as confidentiality obligation. Besides, trademark agencies shall not apply for any other trademarks for their own purpose except trademarks applied for their clients.

6. Change of Trademark Application Methods (Article 22 of new Trademark Law)
First, the Amendment simplifies the trademark application procedure by allowing the applicant to submit one application for one trademark in several different classes.

Second, the Amendment allows the applicant to submit the registration documents in written form or electronic forms.

7. Clarification of Time Limit to the Official Review by Chinese Trademark Office ("CTMO")
The Amendment clarifies the official time limit to different aspects regarding trademark registration procedure which is collected in the table below:

8. Change of Opposition Procedure (Article 33 and 35 of the new Trademark Law)
First, the Amendment distinguishes the applicant who can file an opposition due to absolute and relative reasons and narrows the applicant due to relative reason. According to Article 33 of the new Trademark Law, only the owner of a prior right or an interested party of the trademark may file the opposition to the CTMO due to relative reasons, comparing to any party who can file the opposition before. On the other hand, the previous rule that anyone can file an opposition due to absolute reasons is not changed.

Second, if an opposition of trademark registration is refused by the CTMO after the review, the CTMO will approve the application and the opposing party shall only apply to the TRAB for the remedy through a new procedure – "invalidation". (Article 35 of the new Trademark Law)

9. Trademark Extension (Article 40 of the new Trademark Law)
The Amendment makes a change to the period applicable for the trademark extension. According to Article 40 of the new Trademark Law, the extension of registered trademark can be filed to the CTMO 12 months before the expiration date, comparing to 6 months under the previous law. The 6 months for the extension after the expiration date ("Grace Period") will still exist in the new Trademark Law.

10. Trademark Assignment (Article 42 of the new Trademark Law)
First, compulsory assignment: where the trademark is assigned, if the assignor has registered the similar trademarks on the same products or registered the identical or similar trademarks on the similar products, those trademarks shall be assigned concurrently.

Second, limit to the assignment: CTMO will not approve the assignment which may easily cause confusion or other negative influence.

11. Trademark License (Article 43 of the new Trademark Law)
The Amendment regulates that the license of trademark shall be filed to the CTMO and noticed to the public, otherwise, the license cannot be defended against the third parties in good faith.

12. New Definition "Invalidation" (Section 5 of the new Trademark Law)
The Amendment distinguishes the application of trademark invalidation due to different reasons. Anyone can file the trademark invalidation due to the absolute reasons as well as the registration through fraud or other wrongful activities (Article 44 of the new Trademark Law), meanwhile, only the owner of a prior right or an interested party of the trademark may file the trademark invalidation due to the relative reasons (Article 44 of the new Trademark Law).

13. Revocation of Trademark (Article 49 and 54 of the new Trademark Law)
The Amendment regulates that any legal entity or individual may apply to the CTMO for the revocation of the trademark that is considered as a generic name of products in the place where it is registered or that hasn’t been used for successive 3 years without reasonable reasons. The trademark right is terminated on the date of revocation notice.

14. Restriction of Trademark Registration (Article 50 of the new Trademark Law)
The Amendment regulates that CTMO shall not approve the registration of trademark which is identical or similar to the revoked or invalid or non-extended trademark within one year after it is revoked or invalid or not extended.

15. Adjustment of Trademark Infringement Behavior (Article 57 of the new Trademark Law)
First, the Amendment clarifies the following behaviors involving trademark infringement:

i) Using the trademark identical to registered trademark on the same product;
ii) Using the trademark similar to the registered trademark on the same product;
iii) Using the trademark identical or similar to the registered trademark on the similar product that may easily cause confusion.

Second, the Amendment increases one situation that may cause trademark infringement:

i) Deliberately facilitating the trademark infringement activities or helping others with trademark infringement activities.

16. Trademark and Trade Name (Article 58 of the new Trademark Law)
The Amendment regulates that if any company uses a registered trademark or a unregistered well-known trademark as its trade name which causes public confusion, Anti-Unfair Competition Law will be applied.

17. Fair Use or Prior Use of Trademark (Article 59 of the new Trademark Law)

a. Fair Use
The Amendment regulates that the trademark owner cannot prevent others from using the generic name, picture, model type of products, or descriptive features of products including quality, main materials, function, use, weight, quantity, etc, or geographic name which is included in the registered trademark. It is regarded as the fair use of the registered trademark and the user will not cause the trademark infringement.

Moreover, the Amendment regulates that the trademark owner cannot prevent others from using the trademark with 3D logo which includes i) shape created by nature of products; ii) product shapes required to obtain the technology effect; or iii) the shape creating substantial value of products.

b. Prior Use
If any legal entity or individual has used the trademark before the application date of the trademark and already obtained certain influence to the public, such legal entity or individual may continue to use its trademark after an identical or similar trademark is registered in identical or similar products. However, the continued use shall be limited to the original scope, and the trademark owner may ask the prior user to add marks to its trademark in order to distinguish two trademarks.

18. Damage Calculation Method (Article 63 of the new Trademark Law)
First, the Amendment regulates the method of damage calculation due to the infringement as follows:

i) The damage amount is calculated according to the actual loss suffered by the trademark owner;
ii) If the actual loss is hard to determine, the damage amount is calculated according to the profit gained by the trademark infringer;
iii) If both the actual loss and infringer’s profit are hard to determine, the damage amount shall be calculated according to the reasonable times of trademark license fee. Under the current law, the trademark registrant can elect its actual loss or infringer’s profit;
iv) If the trademark infringement is in bad faith and severe, the punitive damages shall apply and the damage amount can be 1 to 3 times of the normal amount mentioned above.

This is the first time to introduce "punitive damages" concept in the Trademark Law.

Moreover, the trademark infringer shall provide its financial books as evidence to show its profit if the trademark owner is difficult to obtain such information and the court requests the infringer to do so. If the infringer doesn’t provide such information, the court may calculate the damage amount only based on the evidence provided by the trademark owner.

Second, the Amendment increases the maximum of statutory damage amount to RMB 3 million, comparing to RMB 500,000 in the previous law, which may significantly restrain trademark infringement.

19. Non-used Trademark for Three Years (Article 64 of the new Trademark Law)
The Amendment regulates that the trademark owner will not be compensated from the infringer if the trademark owner cannot prove its use of the trademark in the past three years and cannot prove any other loss.

20. Punishment to Trademark Agencies (Article 68 of the new Trademark Law)
Besides the requirements to the trademark agencies, the Amendment also regulates certain types of punishment to the trademark agencies according to different levels of wrongful activities they conduct, including official warning, rectification, monetary penalties, bad credit recording, rejection of trademark application by agencies, and criminal liabilities.

Summary

The Amendment has made a significant improvement in the trademark framework of China in order to adapt the development of intellectual property and new requirements on trademark management.

Based on the trademark practices of the past 10 years, the Amendment stipulates new rules to regulate the existing trademark issues and problems.

Among others, the Amendment brings at least the following improvement/achievement in details:

a. Stipulate explicitly the "good faith" principle in order to safeguard the trademark protection;
b. Clarify the time limit of official reviews in order to increase the efficiency of trademark registration;
c. Simplify the trademark application procedure;
d. Prohibit the wrongful use of the term "well-known trademark" to prevent unfair competition;
e. Reinforce the management of trademark agencies and stipulate the corresponding responsibilities and liabilities;
f. Increase the cap of penalties due to trademark infringement and stipulate explicitly the punitive damages in order to restrain the infringement.

However, there are comments on certain new changes which are unclear or to be further specified as follows:

a. Electronic Application

Even though the application method expands the electronic form, the detailed procedure and requirements on such matter are to be specified.

b. Lack of Review Procedure Due to the Rejection of Opposition

According to the Amendment, if the opposition is rejected by the CTMO, the opposition applicant cannot request the review by TRAB. Instead, the applicant may only apply for the "invalidation" procedure. As a result, even if the trademark is determined to be invalid by the TRAB afterwards, the trademark has been registered when the opposition is rejected and may be used for a period, which will probably affect the benefit of opposition applicant in a negative way. Since such case may probably involve the trademark registration in bad faith, it will be even worse if the trademark owner in bad faith alleges the trademark infringement of the opposition applicant – "actual trademark owner".

"Absolute reasons" refer to the elements which cannot be registered as the trademark regulated in Article 10, 11 and 12 of the new Trademark Law.
"Relative reasons" refer to the situation under which the trademark is applied for in Article 13, 15, 16, 30, 31 and 32 of the new Trademark Law.

by UBILLA & CIA