New Regulations for Online Content Providers
In December 2007, the State Administration of Radio, Movie and Television and the Ministry of Information Industry jointly issued the Regulations on Providing Audio and Video Programs on the Internet, which took effect on January 31, 2008.
According to the Regulations, any company that provides online audio and video services must obtain a license and must be a wholly state-owned or state-holding entity. These companies must keep user information confidential and not post false propaganda on their websites. When providing services for payment, they must publicly list the type, scope, and charges for the programs, as well as other terms on suspension or termination of services.
The Regulations are intended to protect the lawful rights of copyright owners and social development. The service providers must comply with relevant laws to protect copyrights, and obtain copyright owners' authorization for transmission of audio and video programs, or face administrative penalties and fines.
Automatic Monitoring of Internet Pirated Content - Until May
The State Copyright Office is running a campaign to strictly supervise Copyright violations on the Internet. The campaign, ending in May, will automatically search for any unauthorized music and movies transmitted through large websites. The system will warn infringers to remove pirated material and cease their unauthorized transmissions. The State Copyright Office is authorized to impose severe penalties on those who continue their piracy.
Law on the Advancement of Science and Technology
The Standing Committee of the NPC revised the law on the Advancement of Science and Technology, which will take effect on July 1, 2008. In order to develop science and education in China and foster an innovative nation, the law calls for the state to implement various strategies to strengthen intellectual property rights, enforce scientific and professional ethics among researchers, and increase investment in and dissemination of scientific research. Under the new law, funds for research and development of new technology may be deducted from taxable income. The law also sets out the goal of protecting and respecting the academic freedom of scientific researchers. The new law allows undertakers of state-financed projects to apply for intellectual property rights. Foreign companies entering into joint ventures should be careful when conducting their due diligence into ownership of IP rights.
Supreme Court Rules on Foreign-Related Contract Disputes
The Adjudication Committee of the Supreme Court adopted new rules to resolve foreign-related contract disputes. The law was established primarily to clarify legal jurisdiction over transnational contractual matters. Several legal remedies for contract disputes between transnational parties were promulgated, among them the following:
Contracts that fail to select governing law will be governed by the law of
the region that is most closely related to the contracts;
Applications of foreign law that may result in harm to the public interest
andChinese law will be replaced by applications of Chinese law;
subsidiaries, or sharetransfers of JVs will be governed by Chinese
laws, regardless of the parties' chosen law.
Major Revisions to the Catalogue for Foreign Investment
A new edition of the Catalogue for the Guidance of Foreign Investment Industries is now in effect, which was revised to align with China's current national development strategy and meet its World Trade Organization obligations. Significant changes to the Catalogue include an emphasis on promoting foreign investment in the environmental protection and low-waste, high technology industries. The state placed sewage treatment, hazardous waste disposal, recycling, and renewal energy projects on its list of encouraged industries. The new edition furthermore curtails foreign investment in highly polluting industries, such as lead-acid battery manufacturing, and traditional energy resource projects.
The Catalogue was also revised to promote foreign technology and management experience in China, and to foster technological and managerial innovation among its own businesses. To this end, the State has added to the investment catalogue research and training centers, scientific research institutes, and modern logistics and outsourcing services.
With great caution, China is gradually opening up its financial services sector to foreign investment. The new Catalogue further allows foreign-invested securities firms to engage in the underwriting of A-shares and both the underwriting and trading of B-shares, H-shares, and government and corporate bonds. One significant change in the financial services sector is that foreigners are now eligible to invest in futures companies, provided that the Chinese partner is the holding party.
To prohibit foreign investors from participating in industries that are deemed to be politically sensitive, activities ranging from the development and application of human stem cells and gene therapy technology to geological exploration have been added to the "Prohibited" category. Foreign investment in radio, film, television production, news websites, Internet-based video and audio program services, business premises for Internet access services is also prohibited.
The Index continues to steer foreign investment toward infrastructure and capital building projects, such as the management and construction of high-speed railways, passenger railways, railroads, bridges, tunnels, docks, airports, and highways.
Business Income Tax Revisions
In December 2007, China effected the Implementation Regulations of Enterprise Income Tax (EIT), which introduces rules regarding resident enterprises, specifically in relation to foreign corporations, and reduces or eliminates taxes for certain business incomes.
The new regulations define resident enterprises as enterprises managed or established under the laws of China. A foreign corporation will be deemed controlled by a resident enterprise or Chinese citizen and resident enterprise if the following conditions apply:
A resident enterprise or Chinese citizen and resident enterprise
directly or indirectly hold over ten percent of the foreign corporation's voting sharesseparately and hold over 50 percent of its shares jointly;
The resident enterprise or Chinese citizen and resident enterprise materially controlthe foreign corporation's shares, capital, operations, purchases orsales. Direct control in this circumstance means that a resident enterprise directly holds over 20 percent of the foreign corporation shares; indirect control means that a resident indirectly holds over 20 percent of the foreign corporation's shares.
The new regulations allow certain fees to become tax-deductible: certain reasonable loan fees do not need to be capitalized, and the amortized fees related to intangible assets can be calculated on the straight-line method. The amortization period for intangible assets must be at least 10 years.
EIT reduces taxes for or exempts from taxes interest earned on treasury bonds of enterprises and qualified shares; dividends on investment income between resident enterprises; the income of qualified nonprofit organizations; technology transfers; and the income of enterprises engaged in agriculture, forestry, and aquaculture. It further reduces the tax rate for small-scale enterprises to 20 percent. Industrial enterprises with fewer than 100 employees; an annual taxable income below RMB300,000; and total assets of less than RMB30 million are considered small-scale enterprises. Other enterprises with annual taxable income below RMB300,000; fewer than 80 employees; and total assets of RMB10 million also fall into this category.
State Establishes Regulations on Paid Annual Leave for Employees
On December 14, 2007, the State Council established state minimums for annual paid leave for employees, which came into force on January 1, 2008. According to the new regulations, employees who have worked for over one consecutive year at any place of employment are entitled to paid annual leave. Those who have worked 1-10 accumulative years are entitled to five days of annual leave; those who have worked 10-20 years are entitled to 10 days; those who have worked for 20 years are entitled to 15 days. The regulations further state that employers must pay 300 percent of the daily salary of employees who do not use their annual leave.
New Law on Mediation and Arbitration of Labor Disputes Adopted
The Standing Committee of the NPC recently issued the Law on Mediation and Arbitration of Labor Disputes, which takes effect on May 1, 2008. This new law seeks to increase the rights of employees in labor disputes, and enhance the role of labor administrative authorities in the protection of employees' rights. Among the many employee rights it establishes, the law extends the statute of limitations for raising labor disputes to one year; allows employees to apply to the local People's Court if an arbitration committee refuses to hear their complaints; and places the burden of proof on employers during an arbitration proceeding, requiring them to surrender all relevant evidence under their control to the arbitration committee or risk facing legal consequences.
Under this law, award judgments made by an arbitration committee are deemed final in disputes relating to claims for labor remuneration, medical expenses for work-related injury, severance pay or compensation with an amount lower than 12 months of local minimum monthly salaries, and disputes relating to working hours, paid leaves, and social insurance. An employee who is dissatisfied with his arbitration award may file a complaint with the local People's Court within 15 days. Employers will not be able to file a lawsuit with the People's Court after an arbitration award has been issued.
Revisions to Civil Procedure Law Announced
On October 28, 2007, the Standing Committee of the NPC adopted the revised Civil Procedure Law, which will take effect on April 1, 2008. The purpose of the revision is to safeguard channels for dispute arbitration and to protect litigants' interests in court.
The revised Law clarifies and broadens existing standards for opening a civil case for retrial. For example, under the new law, a party may apply for retrial if they discover that the original evidence was forged or that the presiding judge accepted bribes; believe that the original decision omitted or exceeded litigation claims; or uncover significant new evidence. The law also extends, under special circumstances, the period during which litigants may request a retrial. Under previous law, parties were required to apply for retrial within two years after a judgment took effect. In past judicial experience, however, cause for retrial often took longer than two years to appear, which left affected parties with no legal recourse.
The revised law also mandates a system of "instant enforcement" to prevent debtors from concealing or transferring their assets in order to avoid paying their legal liabilities. Under the new law, a higher court may take instant enforcement measures against those who refuse to pay due awards, and who have been deemed as likely to conceal or transfer assets.
In order to compel parties to perform their legal liabilities, the law enables the court to notify relevant agencies to restrict those who fail to perform their liabilities from traveling abroad, and to record such liabilities on the parties' credit histories.
Revisions to Lawyer's Law
The Revised Lawyer's Law will enter into force on June 1, 2008. This new revision seeks to develop and expand the legal counsel's role in building a harmonious socialist society. The law clarifies a legal counsel's duties in protecting his clients' interests, notably by widening attorney-client privilege.
The law standardizes licensing requirements and procedures, and outlines professional conduct rules. Under the revised law, lawyers and law firms will now face heavier punishment, including license revocation and criminal liability, for violations of the law.
The law further safeguards the right of attorneys to interview clients, review documents, and conduct investigations, and exempts legal counsels from liability for their activities relating to tribunal litigation. Among the many protections it establishes, the law now prohibits the monitoring of attorney's interviews with defendants or suspects, and allows attorneys to request the court to collect evidence and to investigate relevant entities or individuals to gather evidence.
Intellectual Property Case Adjudication Act and the Development of Intellectual Property Courts
Taiwan's new IP Courts are scheduled to begin accepting cases July 1, 2008. As promulgated by Taiwan's President in 2007, the Intellectual Property Case Adjudication Act and the Intellectual Property Court Organization Act establish the new IP Courts. Under the IP Court Organization Act, the Intellectual Property Court will govern matters in relation to civil, criminal and administrative actions over intellectual property. The jurisdiction of the IP Court includes the following:
First and second instances of civil litigation on intellectual property
Second instance of criminal litigation on intellectual property cases;
First instance of an administrative action and compulsory
enforcement action on intellectual property cases;
Other cases prescribed by law or determined by the Judicial Yuan to be within thejurisdiction of the IP Court.
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