1. National Development and Reform Commission Circular to Optimize the Handling of Confirmation Letters on Domestic and Foreign-funded Projects Encouraged by the State.
On March 16, 2021, the National Development and Reform Commission ("NDRC") issued the Circular about Optimizing the Handling of Confirmation Letters on Domestic and Foreign-funded Projects Encouraged by the State (关于优化办理外商投资项目《国家鼓励发展的内外资项目确认书》的通知) (the "Circular") (see here for the full text in Chinese)
The Circular is intended to implement the Foreign Investment Law of the People's Republic of China, deepen reform of foreign investment management system, raise the level of foreign investment services, and improve the convenience for handling the Confirmation Letters on Domestic and Foreign-funded Projects Encouraged by the State (the "Confirmation Letters") for foreign-funded projects. The Circular outlines the following relevant points:
2. Release of Measures for the Supervision and Administration of Online Transactions
On March 15, 2021, the State Administration for Market Regulation ("SAMR") officially released the Measures for the Supervision and Administration of Online Transactions (网络交易监督管理办法) (the "Measures") (see here for the full text in Chinese) which come to effect on May 1, 2021.
The Measures are important departmental rules for the implementation of the E-commerce Law, specifying and improving relevant laws and regulations, and formulating a series of specific systems and norms to regulate transactions, clarify the responsibilities of online transaction operators, and protect the rights and interests of consumers. The Measures consist of 56 articles across five chapters and, among other things, provide for the registration of online transaction operators, regulate new business forms and address measures for the protection of personal information. Some details are as follows:
The release of the Measures will provide a strong legal foundation for improving the supervision system, refining and streamlining of online transactions while maintaining a fair online competition and creating a safe and secure consumer environment.
3. 33 financial measures to support Hainan reform and opening-up
On April 9, 2021, the People's Bank of China, China Banking and Insurance Regulatory Commission, China Securities Regulatory Commission and the State Administration of Foreign Exchange jointly issued the Opinions on Financial Support for Hainan in Fully Deepening Reform and Opening-up (《关于金融支持海南全面深化改革开放的意见》) (the "Opinions") (see here for the full text in Chinese). The Opinions set out the overall principles of serving the construction of Hainan Free Trade Port, deepening financial reform, and opening-up - with institutional innovation at its core. Overall, 33 specific measures were released, which are based on six principles:
In terms of improving the convertibility of RMB and supporting the liberalization and facilitation of cross-border trade and investment, the Opinions propose the following measures:
4. Release of the List of Matters Subject to "No Penalty for Violation for the First Time"
On March 31, 2021, the State Taxation Administration ("STA") published the Announcement on Issuing the List of Matters Subject to "No Tax Administrative Punishment for Any Violation Committed for the First Time" (《税务行政处罚"首违不罚"事项清单》) (STA Announcement [2021] No. 6) ("STA Announcement") (see here for the full text in Chinese), which has come into force as of April 1, 2021.
The STA Announcement is in accordance with the newly revised Law of the People's Republic of China on Administrative Penalty (《中华人民共和国行政法》) (see here for the full text in Chinese), and the Rules for the Exercise of Discretion in Administrative Penalty for Taxation (Announcement No. 78 [2016]) (《税务行政处罚裁量权行使规则》) （the "Announcement"） (see here for the full text in Chinese), which introduce the policy of "No Penalty for Violation for the First Time" . That is, the penalty can be exempted for the violation of law for the first time if the action results in only minor harmful consequences and corrective action is taken in a timely manner. To further implement this policy from tax perspectives, the STA Announcement specifies a list of 10 items, covering various types of minor tax violations, which can be exempted from tax penalty for a first time violation. This is a landmark development which represents the current tax administration trend of Chinese tax authority to improve tax compliance by means of education, reminders and other non-punitive measures, and will play a positive role in promoting the efficiency of tax law enforcement.
5. Further details released for Substantive Operation for Preferential Tax Treatment in Hainan Free Trade Port
Following the issuance of the Notice on Preferential CIT Policies for the Hainan Free Trade Port (关于海南自由贸易港企业所得税优惠政策的通知)[Cai Shui [2020] No. 31](see here for the full text in Chinese) and the Announcement on Issues Relating to Corporate Income Tax Incentives for Hainan Free Trade Port (关于海南自由贸易港企业所得税优惠政策有关问题的公告) [Announcement [2020] No. 4 of Hainan Tax Bureau of State Taxation Administration] (see here for the full text in Chinese) ("HTB") that provides the preferential enterprise income tax ("EIT") treatment for Hainan Free Trade Port ("Hainan FTP"), the HTB and two other Hainan governmental authorities jointly promulgated the Announcement on Issues Related to the Substantive Operation of Enterprises in Industries Encouraged by Hainan FTP (关于海南自由贸易港鼓励类产业企业实质性运营有关问题的公告) (HTB Announcement [2021] No.1) ("No.1 Announcement") on March 5, 2021. This No.1 Announcement clarifies the requirements for substantive operation under various circumstances to obtain the preferential EIT treatment. The No.1 Announcement takes effect from January 1, 2020 and will operate until December 31, 2024.
In general, if all aspects of a resident enterprise registered in Hainan FTP are located in Hainan FTP, including production and operation, personnel, accounting and assets, that enterprise will be regarded as having substantive operation in Hainan FTP. Consequently, the enterprise may be eligible for the EIT benefit (15% preferential tax rate) in Hainan FTP. The No.1 Announcement also clarifies the substantive operation standards for branches and non-resident enterprises' premises in Hainan FTP. It is advisable that enterprises established, or to be set up, in Hainan FTP, assess whether their operation and management arrangements meet the legislated criteria to guarantee the eligibility for Hainan FTP tax benefits.
6. Extra Tax Deductions for Manufacturing Industry Research and Development Expenses
To encourage investment in research and development ("R&D") and boost innovation in the manufacturing industry, the Ministry of Finance and the STA jointly published the Announcement on Further Improving the Policies Regarding Weighted Pre-tax Deduction of Research and Development Expenses (财政部 税务总局关于进一步完善研发费用税前加计扣除政策的公告) (Announcement [2021] No.13 of the Ministry of Finance and STA) ("No.13 Announcement") on March 31, 2021 (see here for the full text in Chinese).
The No.13 Announcement further increases the ratio of pre-tax deduction of R&D expenses incurred by manufacturing enterprises from 75% to 100%. Specifically, with respect to R&D expenses not capitalized as intangible asset costs, an extra 100% of the actual expenses incurred can be deducted for EIT purposes, and if the said expenses have been converted into intangible assets, they can be amortized and deducted at the rate of 200%. As such, for every RMB 100,000 spent on R&D, the taxpayer will be able to deduct RMB 200,000 from its taxable income. This so-called R&D super deduction policy is exciting news for enterprises in the manufacturing sector.
Moreover, for taxpayers to claim these benefits as early as possible, the qualified enterprises may opt to benefit from the tax incentive on a semi-annual basis. That is, taxpayers may enjoy the preferential policies for the first half year when filing EIT prepayment return of the third quarter (prepayment on a quarterly basis) or September (prepayment on a monthly basis), or enjoy the whole year super tax deduction when making the annual EIT filing.
7. Issue of the Regulations on Scope of Necessary Personal Information for Common Types of Mobile Internet Applications
On March 22, 2021, the Cybersecurity Administration of China ("CAC"), the Ministry of Industry and Information Technology ("MIIT"), the Ministry of Public Security, and SAMR jointly released the Regulations on Scope of Necessary Personal Information for Common Types of Mobile Internet Applications (Apps) (《常见类型移动互联网应用程序必要个人信息范围规定》) (the "Regulations") (see here for the full text in Chinese). The Regulations specify the scope of necessary personal information collected by 39 kinds of Apps running on mobile terminals, such as map navigation, online car-hailing services, instant messaging, online communities, online payment, online shopping, food and beverage delivery and so forth. The Regulations also, for the first time, explicitly include 'applets' in the regulatory scope of Apps, and emphasize that App operators shall not refuse to provide the basic function services to users if they reject the collection of non-essential personal information.
We suggest that enterprises in China should strictly follow the relevant requirements of the Regulations when developing and operating Apps, and explicitly define the scope of collected and used personal information to protect users' privacy.
8. MIIT Reports and Removes 60 Infringing Apps
On March 11, 2021, MIIT notified the public of a list of 136 Apps companies that violated users' rights and interests. Each of the 136 App companies were re-inspected by a third-party testing institution to determine if they had improved their practices. The investigation found that there are still 53 Apps that have not adequately rectified their practices to meet the requirements of MIIT. During this process, the Zhejiang Communications Administration Bureau independently found that there were 7 further App companies that had not rectified their practices. On April 6, 2021, MIIT organized the removal of these 60 non-compliant App companies in accordance with the requirements of the Cybersecurity Law and the Interim Provisions on the Management of Preset and Distribution of Mobile Smart Terminal Applications and other legal and normative documents (see here for the full text in Chinese).
We suggest that enterprises in China continue to pay attention to the enforcement activities related to the special campaign of Apps, collect and use personal information in a lawful and compliant manner, and protect the rights and interests of users' personal information.
9. Second Drafts of Personal Information Protection Law and the Data Security Law Announced
On April 22, 2021, the Legislative Affairs Committee of the Standing Committee of the National People's Congress held a press conference to introduce legislative work to support data security(see here for the full text in Chinese). This work comprises the second draft of the Data Security Law (the "DSL") and the draft Personal Information Protection Law (the "PIPL").
It is intended that the DSL will:
It is intended that the PIPL will:
We suggest that enterprises in China continue to follow the formulation of the PIPL and the DSL, and pay attention to the issues concerning the protection of personal data and important data.
10. Chief Justice Zhou Qiang and Prosecutor-General Zhang Jun Delivers Work Reports 2021
On March 8, 2021, at the fourth session of the 13th National People's Congress, Chinese Chief Justice Zhou Qiang and Prosecutor-General Zhang Jun delivered the 2021 work reports of the Supreme People's Court ("SPC") (《最高人民法院工作报告》) ( the "Work Report of the SPC") (see here for the full text in Chinese)) and the Supreme People's Procuratorate ("SPP") ((《最高人民检察院工作报告》) (the "Work Report of the SPP") (see here for the full text in Chinese)). The work reports reviewed 2020 highlights of the work of courts and procuratorates in China and outlined proposed future work. The Work Reports outlined the following in relation to intellectual property developments:
11. The SPC Publishes Typical Punitive Damages Cases for Intellectual Property Infringement
In order to enable a proper understanding and application of the Interpretation on the Application of Punitive Damages to Civil Cases of IP Rights Infringement, on March 15, 2021, the SPC published 6 typical civil cases of intellectual property infringement (《侵害知识产权民事案件适用惩罚性赔偿典型案例》) (the "Typical Cases") (see here for the full text in Chinese) in which punitive damages were awarded. The key takeaways of the Typical Cases are as follows:
12. Intellectual Property Court of the SPC Impose First 2021 Fines for Obstruction of Civil Procedure
Recently, the Intellectual Property Court of the SPC imposed its first fines of 2021. In a civil patent infringement case, a party and its legal representative were subject to three penalties due to obstructing the court's investigation and intentionally delaying the submission of evidence. Parties concerned were required to pay a total fine of 200,000 RMB immediately.
In the case, the first-instance judges attempted to conduct an on-site investigation of the place where the alleged infringing computers were kept. However, the legal representative of the defendant refused to provide computer passwords and instructed its staff to invalidate the passwords remotely. The staff of the defendant further obstructed the judges while they tried to gain access to the computers and their contents by other means. As a result, the first-instance court was unable to examine the relevant technical evidence. After receiving an unfavorable judgment, the defendant filed an appeal and submitted new evidence comprising footage of the alleged infringing computer to show its technical characteristics. Based on this footage evidence, the SPC re-examined the facts of the case and reversed the first instance judgement.
Irrespective of the reversal, SPC held that, since the defendant obstructed the court's investigation and failed to provide key evidence required by the first-instance court, the defendant committed deliberate late submission of evidence without a reasonable explanation. According to Articles 65.2, 111.1(5) and 111.2 of the Civil Procedure Law, such obstruction of civil procedure may result in fines and other punishments. Accordingly, the SPC imposed a fine of 100,000 RMB and 50,000 RMB on the defendant and its legal representative respectively for the obstruction of court staff in the course of their duty, and imposed a further fine of 50,000 RMB on the defendant for deliberate late submission of evidence, to severely punish non-compliance with the principle of good faith in litigation, abuse of litigation rights, disruption of litigation order, and waste of judicial resources.
13. Siemens Industry Software Inc. v Guangzhou Wofu Mould Co., Ltd.: computer software copyright infringement
The computer software copyright infringement case between Siemens Industry Software Inc. ("Siemens Software") and Guangzhou Wofu Model Co., Ltd. ("Wofu") was one of the 10 typical cases of technology-related intellectual property cases released by the SPC in 2020. In this case, the SPC clarified the legal consequences of obstruction of evidence preservation.
Siemens Software, the copyright owner of NX software, filed a lawsuit against Wofu in the Guangzhou Intellectual Property Court, alleging that Wofu was infringing its copyright by using NX software without a license. At the request of Siemens Software, the Guangzhou Intellectual Property Court served Wofu with a preservation order, which specified measures to be taken and legal consequences of failure to abide by the order. Then court went to Wofu to conduct preservation. Upon examination, 9 out of 17 preserved computers had NX software installed. However, Wofu took measures to obstruct the preservation by refusing to start some computers, cutting the power, snatching cameras from court staff, forbidding the court staff from leaving and so on. The preservation of evidence was forced to a halt. The Guangzhou Intellectual Property Court later deemed that it was difficult to determine the economic loss of Siemens Software and the illegal profits of Wofu. Considering the high price of NX Software of Siemens Software and Wofu's obstruction of evidence preservation, the Guangzhou Intellectual Property Court, according to the upper limit of statutory damages, ruled that Wofu was to compensate Siemens Software for economic losses of 500,000 RMB and reasonable expenses of 100,000 RMB.
Both parties were unsatisfied with the judgment of the first instance and appealed to the SPC.
The SPC held that if any organization or individual obstructs evidence preservation of courts by violence, threat or other methods, the courts will presume the existence of facts unfavorable to the said organization or individual, and take into account the obstruction of evidence preservation as a circumstance of infringement when determining the amount of damages. Accordingly, the SPC presumed that the 9 computers unsuccessfully preserved by the court of first instance had also installed NX software. Considering the number of infringing software, the price of NX software, Wofu's obstruction of evidence preservation and other factors, the SPC reversed the decision of the first instance and supported the copyright owner's claim for damages and reasonable expenses totalling over 2.7 million RMB (see here for the judgment of the second instance).
In this case, the court rightfully protected the legitimate rights and interests of a foreign entity and clarified the consequences of obstruction of evidence preservation. The SPC made it clear in the judgment that the obstruction by any organization or individual of court staff in exercising their duty by violence, threat or other means is not only a severe violation of the principle of good faith in litigation, but also a severe obstruction to civil procedure. The courts will take into consideration the obstruction in determination of damages. The judgment of this case increased the punishment for the party obstructing evidence preservation. It will play an important guiding role in promoting good faith in litigation.
14. Shanghai continues to improve "No Meeting" review and approval of foreigners' work permits in China
On March 1, 2021, the Municipal Science and Technology Commission of Shanghai, in conjunction with the Municipal Bureau of Foreign Experts, announced the "Notice on Continuously Improving the Approval of 'No Meeting' for Foreigners' Work Permits in China (Version 4.0) to Vigorously Attract Foreign Talents, and Other Related Matters"（《关于持续完善外国人来华工作许可"不见面"审批（4.0版）大力吸引外国人才等有关事项的通知》） ("the Notice") (see here for the full text in Chinese). The notice comes into effect from March 1, 2021.
The Notice relaxes restrictions on age, academic qualifications, and work experience for applicants of foreign work permits. In an attempt to attract more foreign science and technology talent to Shanghai, the age restriction for persons employed to undertake key tasks can be further relaxed (although there's an upper limit of 70 years old), together with restrictions for academic qualifications, and work experiences. If they meet the requirements, they will be granted work permits for at least two years at one time. The Notice also makes it clear that foreign science and technology talent working in Shanghai can be employed on a part-time basis. If foreign science and technology workers who are already legally working in Shanghai subsequently need to take part-time jobs or start new businesses, they are not required to re-apply for or change their work permits. Instead, the employer shall report the changes to the Municipal Science and Technology Commission of Shanghai (Municipal Bureau of Foreign Affairs).
15. Shenzhen Releases the Guide for Preventing Sexual Harassment
On March 24, 2021, the official website of the Women's Federation in Shenzhen published the "Guide for Preventing Sexual Harassment in Shenzhen" (深圳市防治性骚扰行为指南) ("the Guide") (see here for the full text in Chinese), which guides institutions, enterprises, schools and other organizations or bodies to establish a working mechanism for the prevention and effective management of instances of sexual harassment.
The Guide clearly states that institutions, enterprises, schools and other organizations have the responsibility to take necessary preventive and disposal measures to avoid sexual harassment. This includes establishing an internal department responsible for prevention of sexual harassment and developing a system of preventing and controlling sexual harassment. To ensure the organization is effectively following measures to prevent sexual harassment, it must ensure that:
16. The All-China Federation of Trade Unions focuses on supervising employers' illegal overtime work and other issues
On April 9, 2021, the General Office of the All-China Federation of Trade Unions issued the "Measures for Labor Law Supervision of Trade Unions" (工会劳动法律监督办法) ("the Measures") (see here for the full text in Chinese) to further standardize and strengthen labor law supervision of trade unions, enhance the effectiveness and level of legal supervision and allow complete development of the role of labor law supervision of trade unions, particularly in urging employers to standardize employment regulations and support harmonious labor relations.
The Measures stipulate that trade unions will focus on supervising employers' use of malicious arrears, illegal overtime work, illegal layoffs, failure to make or fully make social insurance contributions, and other issues. Clues for relevant problems found shall be investigated, verified, urged for rectification, and promptly reported to the superior trade union. If employees apply for arbitrations or file lawsuits, trade unions shall provide support and assistance in accordance with the law.
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Should you need any additional information, or if you would like to discuss how recent updates in Chinese law may affect your business, please feel free to contact us.
Disclaimer
This client alert is not intended to be legal advice. Readers should seek specific legal advice from KWM legal professionals before acting on the information contained in this alert.
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