Impact of Government Organizational Reform to Research Legal System and Response Thereto (2) – Observation of the Swiss Research Innovation System
Impact of Government Organizational Reform to Research Legal System and Response Thereto (2) – Observation of the Swiss Research Innovation System
I. Foreword
Switzerland is a landlocked country situated in Central Europe, spanning an area of 41,000 km2, where the Alps occupy 60% of the territory, while it owns little cultivated land and poor natural resources. In 2011, its population was about 7,950,000 persons[1]. Since the Swiss Federal was founded, it has been adhering to a diplomatic policy claiming neutrality and peace, and therefore, it is one of the safest and most stable countries in the world. Switzerland is famous for its high-quality education and high-level technological development and is very competitive in biomedicine, chemical engineering, electronics and metal industries in the international market. As a small country with poor resources, the Swiss have learnt to drive their economic and social development through education, R&D and innovation a very long time ago. Some renowned enterprises, including Nestle, Novartis and Roche, are all based in Switzerland. Meanwhile, a lot of creative small-sized and medium-sized enterprises based in Switzerland are dedicated to supporting the export-orientation economy in Switzerland.
Switzerland has the strongest economic strength and plentiful innovation energy. Its patent applications, publication of essay, frequencies of quotation and private enterprises’ innovation performance are remarkable all over the world. According to the Global Competitiveness Report released by the World Economic Forum (WEF), Switzerland has ranked first among the most competitive countries in the world for four years consecutively since 2009[2]. Meanwhile, according to the Global Innovation Index (GII) released by INSEAD and the World Intellectual Property Organization (WIPO) jointly, Switzerland has also ranked first in 2011 and 2012 consecutively[3]. Obviously, Switzerland has led the other countries in the world in innovation development and economic strength. Therefore, when studying the R&D incentives and boosting the industrial innovation, we might benefit from the experience of Switzerland to help boost the relevant mechanism in Taiwan.
Taiwan’s government organization reform has been launched officially and boosted step by step since 2012. In the future, the National Science Council will be reformed into the “Ministry of Science and Technology”, and the Ministry of Economic Affairs into the “Ministry of Economy and Energy”, and the Department of Industrial Development into the “Department of Industry and Technology”. Therefore, Taiwan’s technology administrative system will be changed materially. Under the new government organizational framework, how Taiwan’s technology R&D and industrial innovation system divide work and coordinate operations to boost the continuous economic growth in Taiwan will be the first priority without doubt. Support of innovation policies is critical to promotion of continuous economic growth. The Swiss Government supports technological research and innovation via various organizations and institutions effectively. In recent years, it has achieved outstanding performance in economy, education and innovation. Therefore, we herein study the functions and orientation of the competent authorities dedicated to boosting research and innovation in Switzerland, and observe its policies and legal system applied to boost the national R&D in order to provide the reference for the functions and orientation of the competent authorities dedicated to boosting R&D and industrial innovation in Taiwan.
II. Overview of Swiss Federal Technology Laws and Technology Administrative System
Swiss national administrative organization is subject to the council system. The Swiss Federal Council is the national supreme administrative authority, consisting of 7 members elected from the Federal Assembly and dedicated to governing a Federal Government department respectively. Switzerland is a federal country consisting of various cantons that have their own constitutions, councils and governments, respectively, entitled to a high degree of independence.
Article 64 of the Swiss Federal Constitution[4] requires that the federal government support research and innovation. The “Research and Innovation Promotion Act” (RIPA)[5] is dedicated to fulfilling the requirements provided in Article 64 of the Constitution. Article 1 of the RIPA[6] expressly states that the Act is enacted for the following three purposes: 1. Promoting the scientific research and science-based innovation and supporting evaluation, promotion and utilization of research results; 2. Overseeing the cooperation between research institutions, and intervening when necessary; 3. Ensuring that the government funding in research and innovation is utilized effectively. Article 4 of the RIPA provides that the Act shall apply to the research institutions dedicated to innovation R&D and higher education institutions which accept the government funding, and may serve to be the merit for establishment of various institutions dedicated to boosting scientific research, e.g., the National Science Foundation and Commission of Technology & Innovation (CTI). Meanwhile, the Act also provides detailed requirements about the method, mode and restriction of the government funding.
According to the RIPA amended in 2011, the Swiss Federal Government’s responsibility for promoting innovation policies has been extended from “promotion of technology R&D” to “unification of education, research and innovation management”, making the Swiss national industrial innovation framework more well-founded and consistent[8] . Therefore, upon the government organization reform of Switzerland in 2013, most of the competent authorities dedicated to technology in Swiss have been consolidated into the Federal Department of Economic Affairs, Education and Research.
Under the framework, the Swiss Federal Government assigned higher education, job training, basic scientific research and innovation to the State Secretariat for Education, Research and Innovation (SERI), while the Commission of Technology & Innovation (CTI) was responsible for boosting the R&D of application scientific technology and industrial technology and cooperation between the industries and academy. The two authorities are directly subordinate to the Federal Department of Economic Affairs, Education and Research (EAER). The Swiss Science and Technology Council (SSTC), subordinate to the SERI is an advisory entity dedicated to Swiss technology policies and responsible for providing the Swiss Federal Government and canton governments with the advice and suggestion on scientific, education and technology innovation policies. The Swiss National Science Foundation (SNSF) is an entity dedicated to boosting the basic scientific R&D, known as the two major funding entities together with CTI for Swiss technology R&D. The organizations, duties, functions and operations of certain important entities in the Swiss innovation system are introduced as following.
Date source: Swiss Federal Department of Economic Affairs, Education and Research official website
Fig. 1 Swiss Innovation Framework Dedicated to Boosting Industries－Swiss Federal Economic, Education and Research Organizational Chart
1. State Secretariat of Education, Research and Innovation (SERI)
SERI is subordinate to the Department of Economic Affairs, Education and Research, and is a department of the Swiss Federal Government dedicated to managing research and innovation. Upon enforcement of the new governmental organization act as of January 1, 2013, SERI was established after the merger of the State Secretariat for Education and Research, initially subordinate to Ministry of Interior, and the Federal Office for Professional Education and Technology (OEPT), initially subordinated to Ministry of Economic Affairs. For the time being, it governs the education, research and innovation (ERI). The transformation not only integrated the management of Swiss innovation system but also unified the orientations toward which the research and innovation policy should be boosted.
SERI’s core missions include “enactment of national technology policies”, “coordination of research activities conducted by higher education institutions, ETH, and other entities of the Federal Government in charge of various areas as energy, environment, traffic and health, and integration of research activities conducted by various government entities and allocation of education, research and innovation resources. Its functions also extend to funding the Swiss National Science Foundation (SNSF) to enable SNSF to subsidize the basic scientific research. Meanwhile, the international cooperation projects for promotion of or participation in research & innovation activities are also handled by SERI to ensure that Switzerland maintains its innovation strength in Europe and the world.
The Swiss Science and Technology Council (SSTC) is subordinate to SERI, and also the advisory unit dedicated to Swiss technology policies, according to Article 5a of RIPA[9]. The SSTC is responsible for providing the Swiss Federal Government and canton governments with advice and suggestion about science, education and innovation policies. It consists of the members elected from the Swiss Federal Council, and a chairman is elected among the members.
2. Swiss National Science Foundation (SNSF)
The Swiss National Science Foundation (SNSF) is one of the most important institutions dedicated to funding research, responsible for promoting the academic research related to basic science. It supports about 8,500 scientists each year. Its core missions cover funding as incentives for basic scientific research. It grants more than CHF70 million each year. Nevertheless, the application science R&D, in principle, does not fall in the scope of funding by the SNSF. The Foundation allocates the public research fund under the competitive funding system and thereby maintains its irreplaceable identity, contributing to continuous output of high quality in Switzerland.
With the support from the Swiss Federal Government, the SNSF was established in 1952. In order to ensure independence of research, it was planned as a private institution when it was established[10]. Though the funding is provided by SERI, the SNSF still has a high degree of independence when performing its functions. The R&D funding granted by the SNSF may be categorized into the funding to free basic research, specific theme-oriented research, and international cooperative technology R&D, and the free basic research is granted the largest funding. The SNSF consists of Foundation Council, National Research Council and Research Commission[11].
Data source: prepared by the Study
Fig. 2 Swiss National Science Foundation Organizational Chart(1) Foundation Council
The Foundation Council is the supreme body of the SNSF[12], which is primarily responsible for making important decisions, deciding the role to be played by the SNSF in the Swiss research system, and ensuring SNSF’s compliance with the purpose for which it was founded. The Foundation Council consists of the members elected from the representatives from important research institutions, universities and industries in Swiss, as well as the government representatives nominated by the Swiss Federal Council. According to the articles of association of the SNSF[13], each member’s term of office should be 4 years, and the members shall be no more than 50 persons. The Foundation Council also governs the Executive Committee of the Foundation Council consisting of 15 Foundation members. The Committee carries out the mission including selection of National Research Council members and review of the Foundation budget.
(2) National Research Council
The National Research Council is responsible for reviewing the applications for funding and deciding whether the funding should be granted. It consists of no more than 100 members, mostly researchers in universities and categorized, in four groups by major[14], namely, 1. Humanities and Social Sciences; 2. Math, Natural Science and Engineering; 3. Biology and Medical Science; and 4. National Research Programs (NRPs）and National Centers of Competence in Research (NCCRs). The NRPs and NCCRs are both limited to specific theme-oriented research plans. The funding will continue for 4~5years, amounting to CHF5 million~CHF20 million[15]. The specific theme-oriented research is applicable to non-academic entities, aiming at knowledge and technology transfer, and promotion and application of research results. The four groups evaluate and review the applications and authorize the funding amount.
Meanwhile, the representative members from each group form the Presiding Board dedicated to supervising and coordinating the operations of the National Research Council, and advising the Foundation Council about scientific policies, reviewing defined funding policies, funding model and funding plan, and allocating funding by major.
(3) Research Commissions
Research Commissions are established in various higher education research institutions. They serve as the contact bridge between higher education academic institutions and the SNSF. The research commission of a university is responsible for evaluating the application submitted by any researcher in the university in terms of the school conditions, e.g., the school’s basic research facilities and human resource policies, and providing advice in the process of application. Meanwhile, in order to encourage young scholars to attend research activities, the research committee may grant scholarships to PhD students and post-doctor research[16].
~to be continued~
[1] SWISS FEDERAL STATISTICS OFFICE, Switzerland's population 2011 (2012), http://www.bfs.admin.ch/bfs/portal/en/index/news/publikationen.Document.163772.pdf (last visited Jun. 1, 2013).
[2] WORLD ECONOMIC FORUM [WEF], The Global Competiveness Report 2012-2013 (2012), http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2012-13.pdf (last visited Jun. 1, 2013); WEF, The Global Competiveness Report 2011-2012 (2011), http://www3.weforum.org/docs/WEF_GCR_Report_2011-12.pdf (last visited Jun. 1, 2013); WEF, The Global Competiveness Report 2010-2011 (2010), http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2010-11.pdf (last visited Jun. 1, 2013); WEF, The Global Competiveness Report 2009-2010 (2009),. http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2009-10.pdf (last visited Jun. 1, 2013).
[3] INSEAD, The Global Innovation Index 2012 Report (2012), http://www.globalinnovationindex.org/gii/GII%202012%20Report.pdf (last visited Jun. 1, 2013); INSEAD, The Global Innovation Index 2011 Report (2011), http://www.wipo.int/freepublications/en/economics/gii/gii_2011.pdf (last visited Jun. 1, 2013).
[4] SR 101 Art. 64: “Der Bund fördert die wissenschaftliche Forschung und die Innovation.”
[5] Forschungs- und Innovationsförderungsgesetz, vom 7. Oktober 1983 (Stand am 1. Januar 2013). For the full text, please see www.admin.ch/ch/d/sr/4/420.1.de.pdf (last visited Jun. 3, 2013).
[6] Id.
[7] Id.
[8] CTI, CTI Multi-year Program 2013-2016 7(2012), available at http://www.kti.admin.ch/?lang=en&download=NHzLpZeg7t,lnp6I0NTU042l2Z6ln1ad1IZn4Z2qZpnO2Yuq2Z6gpJCDeYR,hGym162epYbg2c_JjKbNoKSn6A-- (last visited Jun. 3, 2013).
[9] Supra note 5.
[10] Swiss National Science Foundation, http://www.snf.ch/E/about-us/organisation/Pages/default.aspx (last visited Jun. 3, 2013).
[11] Id.
[12] Foundation Council, Swiss National Science Foundation, http://www.snf.ch/E/about-us/organisation/Pages/foundationcouncil.aspx (last visited Jun. 3, 2013).
[13] See Statutes of Swiss National Science Foundation Art.8 & Art. 9, available at http://www.snf.ch/SiteCollectionDocuments/statuten_08_e.pdf (last visited Jun. 3, 2013).
[14] National Research Council, Swiss National Science Foundation, http://www.snf.ch/E/about-us/organisation/researchcouncil/Pages/default.aspx (last visted Jun.3, 2013).
[15] Theres Paulsen, VISION RD4SD Country Case Study Switzerland (2011), http://www.visionrd4sd.eu/documents/doc_download/109-case-study-switzerland (last visited Jun.6, 2013).
[16] Research Commissions, Swiss National Science Foundation, http://www.snf.ch/E/about-us/organisation/Pages/researchcommissions.aspx (last visted Jun. 6, 2013).
1、Chinese REACH has put into shape, how about Taiwan REACH? - A Perspective of Chinese Measures on Environmental Management of New Chemical Substances Taiwan food industry has been struck by the government agency's disclosure that certain unfaithful manufacturers have mixed toxic chemicals into the food additives for the past 30 years, and the chemicals may seriously threaten public health. This event has not only shocked the confidence of the customers to the industry, but also drew public attention on the well-management and the safe use of chemicals. In order to manage the fast advancing and widely applicable chemical substance appropriately, the laws and regulations among the international jurisprudences in recent years tend to regulate unfamiliar chemicals as “new chemical substances” and leverage registration systems to follow their use and import. REACH is one the most successful models which has been implemented by European Union since 2006. China, one of our most important business partners, has also learned from the EU experience and implemented its amended " Measures on Environmental Management of New Chemical Substances" (also known as "Chinese REACH") last year. It is not only a necessity for our industry which has invested or is running a business in China to realize how this new regulation may influence their business as differently , but also for our authority concerned to observe how can our domestic law and regulation may connect to this international trend. Therefore, except for briefing the content of Chinese REACH, this article may also review those existing law and regulations in Taiwan and observe the law making movement taken by our authority. We expect that the comparison and observation in this article may be a reference for our authorities concerned to map out a better environment for new chemical management. 2、The study on Taiwanese businessmen Join the Bid Invitation and Bidding of Science and Technology Project China government invests great funds in their Science and Technology Project management system, containing most of innovated technology. It also creates the great business opportunity for domestic industry. China government builds up a Bid Invitation and Bidding Procedure in the original Science and Technology Project Regime recent years, in order to make the regime become more open and full of transparency. It also improves Regime to become more fairness and efficiency. Taiwan industry may try to apply for those Science and Technology Project, due to this attractive opportunity, but they should understand china's legal system before they really do that. This Article will introduce the "Bid Invitation and Bidding Law of the Peoples Republic of China", and the "Provisional Regulation on Bid Invitation and Bidding of Science and Technology Project", then clarify applied relationship between the "Bid Invitation and Bidding Law of the Peoples Republic of China", and "Government Procurement Law of the Peoples Republic of China". It also analyzes "Bid Invitation and Bidding Procedure", "Administration of Contract Performance Procedure", "Inspection and Acceptance Procedure", and "Protest and Complaint Procedure, providing complete legal observation and opinion for Taiwan industry finally. Keyword Bid Invitation and Bidding Law of the Peoples Republic of China; Government Procurement Law of the Peoples Republic of China; Provisional Regulation on Bid Invitation and Bidding of Science and Technology Project; Applying for Science and Technology Project Regime; Bid Invitation and Bidding Procedure; Administration of Contract Performance Procedure; Inspection and Acceptance Procedure; Protest and Complaint Procedure. 3、Comparing the Decisions of the United States Supreme Court regarding Preempting Marketing Medical Devices and Drugs from State Tort Litigations with the Decision of a Hypothetical Case in Taiwan The investment costs of complying with pertinent laws and regulations for manufacturing, marketing, and profiting from drugs and medical devices (abbreviated as MD) are far higher than the costs necessary for securing a market permit. The usage of MD products contains the risk of harming their users or the patients, who might sue the manufacturer for damages in the court based on tort law. To help reduce the risk of such litigation, the industry should be aware of the laws governing the state tort litigations and the preemption doctrine of the federal laws of the United States. This article collected four critical decisions by the United States Supreme Court to analyze the requirements of federal preemption from the state tort litigations in these cases. The article also analyzed the issues of preemption in our law system in a hypothetical case. These issues include the competing regulatory requirements of the laws and regulations on the drugs and MDs and the Drug Injury Relief Act versus the Civil Code and the Consumer Protection Law. The article concluded: 1. The pre-market-approval of MD in the United States is exempted from the state tort litigations; 2. Brand-name-drug manufacturers must proactively update the drug label regarding severe risks evidenced by the latest findings; 3. Generic-drug manufacturers are exempted from the product liability litigations and not required to comply with the aforementioned brand-name-drug manufacturers' obligation; 4. No preemption issues are involved in these kinds of product liability litigations in our country; 5. The judge of general court is not bound by the approval of marketing of drug and MD; 6. The judge of general court is not bound by the determination and verdict of the Drug Injury Relief Act. 4、Through Computer-Aided Detection Software, Comparing by Discussing and Analyzing the Regulatory Requirements for Marketing Medical Devices in the United States and in Taiwan Computer-Aided Detection (CADe) software systematically assists medical doctors to detect suspicious diseased site(s) inside patients' bodies, and it would help patients receive proper medical treatments as soon as possible. Only few of this type of medical device (MD) have been legally marketed either in the United States of America (USA) or in Taiwan. This is a novel MD, and the rules regulating it are still under development. Thus, it is valuable to investigate and discuss its regulations. To clarify the requirements of legally marketing the MD, this article not only collects and summarizes the latest draft guidance announced by the USA, but also compares and analyzes the similarities and differences between USA and Taiwan, and further explains the logics that USA applies to clarify and qualify CADe for marketing, so that the Department of Health (DOH) in Taiwan could use them as references. Meanwhile, the article collects the related requirements by the Administrative Procedure Act and by the Freedom of Government Information Law of our nation, and makes the following suggestions on MD regulations to the DOH: creating product code in the system of categorization, providing clearer definition of classification, and actively announcing the (abbreviated) marketing route that secures legal permission for each individual product. 5、A Discussion on the Recent Cases Concerning the Joint Infringement of Method/Process Patents in the U.S. and Japan In the era of internet and mobile communication, practices of a method patent concerning innovative service might often involve several entities, and sometimes the method patent can only be infringed jointly. Joint infringement of method/process patents is an issue needed to be addressed by patent law, since it is assumed that a method patent can only be directly infringed by one entity to perform all the steps disclosed in the patent. In the U.S., CAFC has established the "control or direction" standard to address the issue, but the standard has been criticized and it is under revision now. In Japan, there is no clearly-established standard to address the issue of joint infringement, but it seems that the entity that controls and benefits from the joint infringement might be held liable. Based on its discussion about the recent development in the U.S. and Japan, this article attempts to provide some suggestions for inventors of innovative service models to use patents to protect their inventions properly: they should try to avoid describing their inventions in the way of being practiced by multi-entities, they should try to claim both method and system/apparatus inventions, and they should try to predict the potential infringement of their patents in order to address the problem of how to prove the infringement.
Executive Yuan’s call to action:“Industrial Upgrading and Transformation Action Plan”I.Introduction Having sustained the negative repercussions following the global financial crisis of 2008, Taiwan’s average economic growth rate decreased from 4.4 percent (during 2000-2007 years) to 3 percent (2008-2012). This phenomenon highlighted the intrinsic problems the Taiwanese economic growth paradigm was facing, seen from the perspective of its development momentum and industrial framework: sluggish growth of the manufacturing industries and the weakening productivity of the service sector. Moreover, the bleak investment climate of the post-2008 era discouraged domestic investors injecting capital into the local economy, rendering a prolonged negative investment growth rate. To further exacerbation, the European Debt Crisis of 2011 – 2012 has impacted to such detriment of private investors and enterprises, that confidence and willingness to invest in the private sector were utterly disfavored. It can be observed that as Taiwan’s industrial core strength is largely concentrated within the the manufacturing sector, the service sector, on the other hand, dwindles. Similarly, the country’s manufacturing efforts have been largely centered upon the Information & Communications Technology (ICT) industry, where the norm of production has been the fulfillment of international orders in components manufacturing and Original Equipment Manufacturing (OEM). Additionally, the raising-up of society’s ecological awareness has further halted the development of the upstream petrochemical and metal industry. Consumer goods manufacturing growth impetus too has been stagnated. Against the backdrop of the aforementioned factors at play as well as the competitive pressure exerted on Taiwan by force of the rapid global and regional economic integration developments, plans to upgrade and transform the existing industrial framework, consequently, arises out as an necessary course of action by the state. Accordingly, Taiwan’s Executive Yuan approved and launched the “Industrial Upgrading and Transformation Action Plan”, on the 13th of October 2014, aiming to reform traditional industries, reinforcing core manufacturing capacities and fostering innovative enterprises, through the implementation of four principal strategies: Upgrading of Product Grade and Value, Establishment of Complete Supply Chain, Setting-up of System Integration Solutions Capability, Acceleration of Growth in the Innovative Sector. II.Current challenges confronting Taiwanese industries 1.Effective apportionment of industrial development funds Despite that Research and Development (R&D) funds takes up 3.02% of Taiwan’s national GDP, there has been a decrease of the country’s investment in industrial and technology research. Currently Taiwan’s research efforts have been directed mostly into manufacturing process improvement, as well as into the high-tech sector, however, traditional and service industries on the other hand are lacking in investments. If research funds for the last decade could be more efficiently distributed, enterprises would be equally encouraged to likewise invest in innovation research. However, it should be noted that Taiwan’s Small and Medium Enterprises (SME) based on their traditional developmental models, do not place research as their top priority. Unlike practices in countries such as Germany and Korea, the research fund input by private enterprises into academic and research institutions is still a relatively unfamiliar exercise in Taiwan. With regards to investment focus, the over-concentration in ICTs should be redirected to accommodate growth possibilities for other industries as well. It has been observed that research investments in the pharmaceutical and electric equipment manufacturing sector has increased, yet in order to not fall into the race-to-the-bottom trap for lowest of costs, enterprises should be continually encouraged to develop high-quality and innovative products and services that would stand out. 2.Human talent and labor force issues Taiwan’s labor force, age 15 to 64, will have reached its peak in 2015, after which will slowly decline. It has been estimated that in 2011 the working population would amount to a meager 55.8%. If by mathematical deduction, based on an annual growth rate of 3%, 4% and 5%, in the year 2020 the labor scarcity would increase from 379,000, 580,000 to 780,000 accordingly. Therefore, it is crucial that productivity must increase, otherwise labor shortage of the future will inevitably stagnate economic growth. Notwithstanding that Taiwan’s demographical changes have lead to a decrease in labor force; the unfavorable working conditions so far has induced skilled professionals to seek employment abroad. The aging society along with decrease in birth rates has further exacerbated the existing cul-de-sac in securing a robust workforce. In 1995 the employment rate under the age of 34 was 46.35%, yet in 2010 it dropped to a daunting 37.6%. 3.Proportional land-use and environmental concerns Taiwan’s Environmental Impact Assessment (EIA) is a time-consuming and often unpredictable process that has substantially deterred investor’s confidence. Additionally, there exists a disproportionate use of land resources in Taiwan, given that demand for its use predominantly stems from the northern and middle region of the country. Should the government choose to balance out the utilization of land resources across Taiwan through labor and tax policies, the situation may be corrected accordingly. III.Industrial Upgrading and Transformation Strategies The current action plan commences its implementation from October 2014 to end of December 2024. The expected industrial development outcomes are as follows: (1) Total output value of the manufacturing sector starting from 2013 at NTD 13.93 trillion is expected to grow in 2020 to NTD 19.46 trillion. (2) Total GDP of the service sector, starting at 3.03 trillion from 2011 is expected to grow in 2020 to 4.75 trillion NTD. 1.Strategy No.1 : Upgrading of product grade and value Given that Taiwan’s manufacturing industry’s rate for added value has been declining year after year, the industry should strive to evolve itself to be more qualitative and value-added oriented, starting from the development of high-end products, including accordingly high-value research efforts in harnessing essential technologies, in the metallic materials, screws and nuts manufacturing sector, aviation, petrochemical, textile and food industries etc. (1) Furtherance of quality research Through the employment of Technology Development Program (TDP) Organizations, Industrial TDP and Academic TDP, theme-based and pro-active Research and Development programs, along with other related secondary assistance measures, the industrial research capability will be expanded. The key is in targeting research in high-end products so that critical technology can be reaped as a result. (2) Facilitating the formation of research alliances with upper-, mid- and downstream enterprises Through the formation of research and development alliances, the localization of material and equipment supply is secured; hence resulting in national autonomy in production capacity. Furthermore, supply chain between industrial component makers and end-product manufacturers are to be conjoined and maintained. National enterprises too are to be pushed forth towards industrial research development, materializing the technical evolution of mid- and downstream industries. (3) Integrative development assistance in Testing and Certification The government will support integrative development in testing and certification, in an effort to boost national competitive advantage thorough benefitting from industrial clusters as well as strengthening value-added logistics services, including collaboration in related value-added services. (4) Establishment of international logistics centre Projection of high-value product and industrial cluster image, through the establishment of an international logistics centre. 2.Strategy No.2 : Establishment of a Complete Supply Chain The establishing a robust and comprehensive supply chain is has at its aim transforming national production capabilities to be sovereign and self-sustaining, without having to resort to intervention of foreign corporations. This is attained through the securing of key materials, components and equipments manufacturing capabilities. This strategy finds its application in the field of machine tool controllers, flat panel display materials, semiconductor devices (3D1C), high-end applications processor AP, solar cell materials, special alloys for the aviation industry, panel equipment, electric vehicle motors, power batteries, bicycle electronic speed controller (ESC), electrical silicon steel, robotics, etc. The main measures listed are as follows: (1) Review of industry gaps After comprehensive review of existing technology gaps depicted by industry, research and academic institutions, government, strategies are to be devised, so that foreign technology can be introduced, such as by way of cooperative ventures, in order to promote domestic autonomous development models. (2) Coordination of Research and Development unions – building-up of autonomous supply chain. Integrating mid- and downstream research and development unions in order to set up a uniform standard in equipment, components and materials in its functional specifications. (3) Application-theme-based research programs Through the release of public notice, industries are invited to submit research proposals focusing on specific areas, so that businesses are aided in developing their own research capabilities in core technologies and products. (4) Promotion of cross-industry cooperation to expand fields of mutual application Continuously expanding field of technical application and facilitating cross-industry cooperation; Taking advantage of international platform to induce cross-border technical collaboration. 3.Strategy No.3 : Setting-up of System Integration Solutions capability Expanding turnkey-factory and turnkey-project system integration capabilities, in order to increase and stimulate export growth; Combination of smart automation systems to strengthen hardware and software integration, hence, boosting system integration solution capacity, allowing stand-alone machinery to evolve into a total solution plant, thus creating additional fields of application and services, effectively expanding the value-chain. These type of transitions are to be seen in the following areas: turnkey-factory and turnkey-project exports, intelligent automated manufacturing, cloud industry, lifestyle (key example: U-Bike in Taipei City) industry, solar factory, wood-working machinery, machine tools, food/paper mills, rubber and plastic machines sector. Specific implementation measure s includes: (1) Listing of national export capability – using domestic market as test bed for future global business opportunities Overall listing of all national system integration capabilities and gaps and further assistance in building domestic “test beds” for system integration projects, so that in the future system-integration solutions can be exported abroad, especially to the emerging economies (including ASEAN, Mainland China) where business opportunities should be fully explored. The current action plan should simultaneously assist these national enterprises in their marketing efforts. (2) Formation of System Integration business alliances and Strengthening of export capability through creation of flagship team Formation of system integration business alliances, through the use of national equipment and technology, with an aim to comply with global market’s needs. Promotion of export of turnkey-factory and turnkey-projects, in order to make an entrance to the global high-value system integration market. Bolstering of international exchanges, allowing European and Asian banking experts assist Taiwanese enterprises in enhancing bids efforts. (3) Establishing of financial assistance schemes to help national enterprises in their overseas bidding efforts Cooperation with financial institutes creating financial support schemes in syndicated loans for overseas bidding, in order to assist national businesses in exporting their turnkey-factories and turnkey-solutions abroad. 4. Strategy No.4 : Acceleration of growth in the innovative sectors Given Taiwan economy’s over-dependence on the growth of the electronics industry, a new mainstream industry replacement should be developed. Moreover, the blur distinction between the manufacturing, service and other industries, presses Taiwan to develop cross-fields of application markets, so that the market opportunities of the future can be fully explored. Examples of these markets include: Smart Campus, Intelligent Transportation System, Smart Health, Smart City, B4G/5G Communications, Strategic Service Industries, Next-Generation Semiconductors, Next-Generation Visual Display, 3D Printing, New Drugs and Medical Instruments, Smart Entertainment, Lifestyle industry (for instance the combination of plan factory and leisure tourism), offshore wind power plant, digital content (including digital learning), deep sea water. Concrete measures include: (1) Promotion of cooperation between enterprises and research institutions to increase efficiency in the functioning of the national innovation process Fostering of Industry-academic cooperation, combining pioneering academic research results with efficient production capability; Cultivation of key technology, accumulation of core intellectual property, strengthening integration of industrial technology and its market application, as well as, establishment of circulation integration platform and operational model for intellectual property. (2) Creating the ideal Ecosystem for innovation industries Strategic planning of demo site, constructing an ideal habitat for the flourishing of innovation industries, as well as the inland solution capability. Promotion of international-level testing environment, helping domestic industries to be integrated with overseas markets and urging the development of new business models through open competition. Encouraging international cooperation efforts, connecting domestic technological innovation capacities with industries abroad. (3) Integration of Cross-Branch Advisory Resources and Deregulation to further support Industrial Development Cross-administrations consultations further deregulation to support an ideal industrial development environment and overcoming traditional cross-branch developmental limitations in an effort to develop innovation industries. IV. Conclusion Taiwan is currently at a pivotal stage in upgrading its industry, the role of the government will be clearly evidenced by its efforts in promoting cross-branch/cross-fields cooperation, establishing a industrial-academic cooperation platform. Simultaneously, the implementation of land, human resources, fiscal, financial and environmental policies will be adopted to further improve the investment ambient, so that Taiwan’s businesses, research institutions and the government could all come together, endeavoring to help Taiwan breakthrough its currently economic impasse through a thorough industrial upgrading. Moreover, it can be argued that the real essence of the present action plan lies in the urge to transform Taiwan’s traditional industries into incubation centers for innovative products and services. With the rapid evolution of ICTs, accelerating development and popular use of Big Data and the Internet of Things, traditional industries can no longer afford to overlook its relation with these technologies and the emerging industries that are backed by them. It is only through the close and intimate interconnection between these two industries that Taiwan’s economy would eventually get the opportunity to discard its outdated growth model based on “quantity” and “cost”. It is believed that the aforementioned interaction is an imperative that would allow Taiwanese industries to redefine its own value amidst fierce global market competition. The principal efforts by the Taiwanese government are in nurturing such a dialogue to occur with the necessary platform, as well as financial and human resources. An illustration of the aforementioned vision can be seen from the “Industrie 4.0” project lead by Germany – the development of intelligent manufacturing, through close government, business and academic cooperation, combining the internet of things development, creating promising business opportunities of the Smart Manufacturing and Services market. This is the direction that Taiwan should be leading itself too. References 1.Executive Yuan, Republic of China http://www.ey.gov.tw/en/（last visited: 2015.02.06） 2.Industrial Development Bureau, Ministry of Economic Affairs http://www.moeaidb.gov.tw/（last visited: 2015.02.06） 3.Industrial Upgrading and Transformation Action Plan http://www.moeaidb.gov.tw/external/ctlr?PRO=filepath.DownloadFile&f=policy&t=f&id=4024（last visited: 2015.02.06）
Introduction to Tax Incentive Regime for SMEsIntroduction to Tax Incentive Regime for SMEs I. Introduction The developments of SMEs (small-and-medium enterprises) plays an important pillar of development of industries and creation of jobs in Taiwan. In 2017, the total number of SMEs in Taiwan was 1,437,616. They offer 8,904,000 jobs, accounting for 78.44% of the workforce[1]. However, SMEs have difficulties in entering international supply chains because of their weakness in finance. Therefore, how to enhance the global competitiveness of SMEs is an important issue for the concerned authority. Chapter 4 of the Act for Development of Small and Medium Enterprises prescribes the tax incentive regime based on the financial capability of SMEs and characteristics of industries in order to facilitate the development of SMEs, especially the globalization of SMEs. This paper will review the importance of tax incentives to SMEs and introduces the tax incentive regime under the Act for Development of Small and Medium Enterprises In order to help SMES have an understanding of such regime. II. SME Tax Incentives Scheme As the gatekeeper of the market, the government may intervene the market with various policies or tools to reallocate and improve the soundness of the market environment when the market competitions is impaired due to information asymmetry or externalities. At this juncture, preferential tax rates or tax deductions can be offered to specific taxpayers through legal institution. This allows these taxpayers to retain higher post-tax earnings so that they are incentified to invest more resources in the legally defined economic activities. Tax incentives targeting at risky or spillover investments to create benefits to specific economic activities will help the development of industries and markets. Whilst Article 10 of the Statute for Industrial Innovation has provided tax cuts for R&D expenditures, these incentives are not focus on SMEs and hence not supportive to their research and innovations. This was the reason for the 2016 amendment of the Act for Development of Small and Medium Enterprises added Article 35 to offer tax incentives in order to encourage R&D and innovative efforts and Article 35-1 to activate intellectual properties via licensing. These articles aim to accelerate the momentum of innovations and transformations which promoting investments for SMEs. OthersTo assist SMEs to cope with change of the business environment, the Article 36-2 added the tax incentives for salary or headcount increases, to contribute to the sustainability of SMEs and stabilize the labour market and industrial structures. Following is an explanation of the applicability of these schemes and the requirements to qualify such incentives. III. Tax Incentives to Promote Investments (I) Tax deductions for R&D expenditures Governments around the world seek to encourage corporate R&D activities, that Tax incentives are put in place to reduce R&D costs and foster a healthy environment of investment for more R&D initiatives. Neighboring countries such as Japan, Korea and Singapore are frequently practicing belowing tax burdens to encourage R&D efforts. Article 35 of the Act for Development of Small and Medium Enterprises in Taiwan allows accelerated depreciation and offers tax cuts[2] to stimulate R&D and innovations and create an investment friendly environment for SMEs. 1. Taxpaying Entities and Requirements (1) Qualifications for SMEs Article 35 of the Act is applicable to qualified SMEs and individual taxpayers, which are (1) from manufacturing, construction & engineering, mining and quarrying industries, with paid-in capital below or equal to NT$80 million or with the number of full-time employees less than 200 people; (2) from other industries with the sales of the previous year below or equal to NT$100 million or with the number of full-time employees less than 100 people. Thus, the qualifications of Small and Medium Enterprises are based on either paid-in capital/sales or number of employees under the Act[3].Meanwhile, SMEs may not have an independent R&D department due to the limit of size or operating cost.Therefore, if the taxpayers hiring full-time R&D personnel that can provide records of job descriptions and work logs to R&D activities, the SMEs can access the tax incentives provided that the R&D functions. The recognized by government agencies is increasingly flexibility for SMEs seeking policy support. 2. Taxpayers and requirements (1) A certain degree of innovativeness As the tax incentive regime strives to promote innovations, the R&D expenses should be used to fund innovative developments. According to the official letters from the Small and Medium Enterprise Administration, Ministry of Economic Affairs, there is no high bar as forward-looking, risky and innovative as usually” required for other incentives previously, which is considering the size of SMEs and their industry characteristics. The “certain degree” of innovativeness shall be based on industry environments and SME businesses as determined by competent authorities in a flexible manner. (2) Flexibility in the utilization of business income tax reductions To encourage regular R&D activities, The case that SMEs may not have R&D undertakings each year due to funding constraints, or start-up company may have incurred R&D expenditures but are not yet profitable and hence have no tax liabilities during the year, Corporate taxpayers were able to choose beside deduct the payable taxes during a single year, and reduce the payable taxes during the current year over three years starting from the year when tax incentives are applicable. 3. Tax incentive effects As previously mentioned, Article 35 of the Act for Development of Small and Medium Enterprises accommodates the characteristics of SMEs by allowing reductions of corporate business taxes for up to 15% R&D expenditures during the current year, or spreading the tax reductions by spreading up to 10% of the R&D expenditures over three years from the first year when the incentives are applicable. It is worth noting that the tax deductions shall not exceed 30% of the payable business income taxes during a single year. If the instruments and equipment for R&D, experiments or quality inspections have a lifetime over two years or longer, it is possible to accelerate the depreciation within half of the years of service prescribed by the income tax codes for fixed assets. However, the final year less than 12 months over the shortened service years shall not be counted. Accelerated depreciation brings in tax benefits for fixed asset investments during the initial stage, that meets the requirements for new technologies and risk management by frontloading the equipment depreciation and creates a buffer for capital utilization. (II) Deferred taxations on licensing/capitalization of intellectual properties The deferral of tax payments under the Act for Development of Small and Medium Enterprises is meant to avoid any adverse effect on the application of technological R&Ds by SMEs. As the equity stakes via capitalization of intellectual properties by inventors or creators are not cashed out yet and the subsequent gains may not be at the same valuation as determined at the time of capitalization, the immediate taxation may hinder the willingness to transfer intellectual properties. Therefore, assisting SMEs to release intellectual properties with potential economic value, the licensing and capitalization of intellectual properties is strongly encouraged. The tax expenses shall be deferred within SME or an individual acquires stakes on a non-publicly-listed company by transferring their intellectual properties. This is to stimulate the applications and sharing of relevant manufacturing technologies. When an SME or an individual acquires stakes on a non-publicly-listed company by transferring their intellectual properties, their tax expenses shall be deferred. 1. Taxpayers and requirements (1) Qualifications for individuals or SMEs Article 35-1 of the Act for Development of Small and Medium Enterprises is applicable to SMEs and individual taxpayers. This is to foster the growth of SMEs and enhancement of industry competitiveness by encouraging R&D and innovations from individuals and start-ups. To promote the commercialize of intellectual properties in different ways, the Act for Development of Small and Medium Enterprises provides income tax incentives to individuals and SMEs transferring intellectual properties. The purpose is to encourage different paths to industry upgrades. (2) Ownership of intellectual properties To ensure that the proceeds of intellectual property is linked to the activity of intellectual properties which perform by individuals or SMEs. Only the owners of the intellectual properties capitalized and transferred can enjoy the tax benefits. Intellectual properties referred to in the Act for Development of Small and Medium Enterprises are the properties with value created with human activities and hence conferred with legal rights. These include but are not limited to copyrights, patent rights, trademarks, trade secrets, integrated circuit layouts, plant variety rights and any other intellectual properties protected by laws[4]. (3) Acquisition of stock options The abovementioned tax incentives are offered to the individuals or SMEs who transfer intellectual properties to non-listed companies in exchange of their new shares. The income taxes on the owners of intellectual properties are deferred until acquisition of shares. These shares are not registered with the book-entry system yet. Before the transferrers of intellectual properties dispose or offload these shares, immediate taxations will impose economic burdens and funding challenges given the unknown prices of the eventual cash-out. Therefore, this legislation is only applicable to taxpayers who obtain options for new shares. 2. Taxpayers and requirements (1) Transfer of intellectual properties According to Article 36 of the Copyright Act as interpreted by official letters issued by the Ministry of Finance, the transfer of intellectual properties is the conferring of intellectual properties to others, and the transferees access these intellectual properties within the scope of the transfer. In terms “transfer” of the first and second paragraphs of Article 36 does not include licensing[5], but such as granting, licensing and inheritance. (2) Timing of income tax payments In general, the particular time that calculation of taxes payable is based on when the taxpayers acquire the incomes, less relevant expenses or costs. The taxes payable timing should be depending on when the taxpayers obtain the newly issued shares by transferring intellectual properties. However, the levy of income taxes at the time of intellectual property transfers and new share acquisitions may cause a sudden jump in taxes payable in the progressive system and thus a burden on the economics of SMEs and individuals concerned. Thus, to avoid disruptions to company operations or personal finance planning, Article 36 makes the exception for the incomes earned by subscribing to new shares as a result of transferring intellectual properties. Such incomes are not subject to taxes during the year when the shares are acquired, in order to mitigate the tax barriers concerned. In sum, the taxes shall be paid when such shares are transferred, gifted or distributed. 3. Tax incentive effects Article 35-1 of the Act for Development of Small and Medium Enterprises provides tax incentives to stimulate the mobilization of intellectual properties by smoothing out the impact of income taxes payable. This is applicable to (1) SMEs who can postpone the business income taxes payable from the year when they acquire new shares of non-listed companies by transferring the intellectual properties they own; (2) individuals who can postpone the individual income taxes payable from the year when they acquire new shares of non-listed companies by transferring the intellectual properties they own. IV. Tax incentives aiming to improve the business environment (I) Tax reductions for wages to additional headcounts SMEs are vital to the Taiwan, making uo 90% of the companies accounting in Taiwan, who employ more than 6.5 million people or 72.8% of the total workforce. Any economic recession may make it difficult for SMEs to maintain their labor costs given their smaller funding size and external challenges. This will cause higher unemployment rates and hurt the economy, which may cause impairment of the capacity or create a labor gap for SMEs, eventually shrink the industry scale. To lower the burden of operational and investment costs and learn from the legislatives in Japan and the U.S.[6], tax incentives are put in place as a buffer for adverse effects of external environments. The first paragraph of Article 36-2 of the Act for Development of Small and Medium Enterprises provide tax incentives for employee salaries of new headcounts based on the assessment on the economy over a time period. This is intended to encourage domestic investments and avoid the pitfall of direct government subsidies distorting salary structures. It is hoped that investments from SMEs can stimulate the momentum of economic growth. 1. Taxpayers The tax incentives under Article 36-2 of the Act for Development of Small and Medium Enterprises aim to assist SMEs through difficult times in an economic downturn. The threshold of the period time is based on the unemployment rate has been below the economic indicator predetermined for six consecutive months, which calculated by the Directorate General of Budget, Accounting and Statistics, Executive Yuan. In number of the unemployment rate has been below the economic indicator predetermined for six consecutive months, it is deemed that the business environment is not friendly to SMEs. In this instance, the Regulations for the Tax Preferences Provided to Small and Medium-sized Enterprises on Additional Wage Payment will trigger the tax incentives. The abovementioned economic indicator shall be published by the competent authorities once every two years. Moreover, to qualify for the tax incentives for new employees, SMEs should investing new ventures or instill new capital by at least $500,000[7] or hiring workforce at least two full-time headcounts compared with the previous fiscal year, that constitute at the Article 36-2 of the Act for Development of Small and Medium Enterprises, which aims to encourage SMEs investments. 2. Taxpayers (1) Qualifications of additional headcounts As the dispatched human resource services typically meet temporary or short-term requirements and contractors do not enjoy employment security, this is not consistent with the spirit of the legislation to create jobs and reduce unemployment. Therefore, to avoid the one-time increase of headcounts from accessing the tax reductions during the year and the deterioration of labor relations in Taiwan. Tax incentive is not offered to the additional recruitment of part-time or contracted workers. Meanwhile, the tax incentives are only applicable to the additional employment of Taiwanese nationals, above or below 24 years old. A tax deduction of 50% based on annual wages is provided for the hiring of people below 24 years old. The extra tax deduction will stimulate young employment. (2) Definition of additional employment The number of additional headcounts is based on permanent hires and calculated as the difference between the average number of Taiwanese employees covered by labor insurance per month throughout a single fiscal year or before and after the incremental increase of workforce. The conversion of regular contracts to indefinite employment in writing or signing up for indefinite R&D headcounts under the military service scheme can also be deemed as additional employment. It is worth noting, however, the new headcounts resulted from M&A activities or transfer between affiliated companies are excluded in this legislation. (3) Calculation of wages Companies are also required to increase employment as well as the Comparable Wages. The comparable wages are estimated with the summation of 30% of the wages for the year before and after additional employment that based on the aggregate of the new hires comparable wages compared to the prior year. In other words, if the aggregate wages paid out are higher than comparable wages during the year, the companies concerned have indeed incurred higher personnel expenses. Tax incentives are thus granted because it improves the business environment and it is the purpose of this legislation. 3. Tax incentive effects The first paragraph of Article 36-2 of the Act for Development of Small and Medium Enterprises provides deductions of business income taxes during the year to qualified SMEs at an amount equivalent to 130% of the incremental wages paid to new headcounts who are Taiwanese nationals. The deductible amount is equivalent to 150% of the incremental wages if new headcounts are Taiwanese nationals below 24 years old. (II) Tax incentives for companies that increase salaries Companies are subject to the effect of changes in the external factors such as global supply and demand on the international market, as well as the domestic business environment as a result of risk aversion from investors and expectation from customers. These uncertainties associated with investments and the rising prices for consumers will suppress the wage levels in Taiwan. This the reason why the second paragraph of Article 36-2 of the Act for Development of Small and Medium Enterprises grants tax deductions for the companies who increase salaries, to encourage companies share earnings with employees and enhance private-sector consumption. SMEs may deduct their business income taxes payable during the year up to 30% of salary increase for existing entry-level employees who are Taiwanese nationals, not as a result of statutory requirement for basic wage adjustments. 1. Taxpayers The tax incentives are applicable to SMEs as defined by the Regulations for the Tax Preferences Provided to Small and Medium-sized Enterprises on Additional Wage Payment and based on the same economic indicators previously mentioned. 2. Qualification for tax incentives (1) Definition of entry-level employees The object of taxation under this act is the enterprise's average wage payment to the entry-level employees. The entry-level employees referred to in this act are authorized by the "Small and medium-sized enterprise employee salary increase, salary deduction act " that refers to employees of local nationality with an average monthly recurring salary below nt $50,000[8] whose were entered into indefinite employment contracts with SMEs. Through such conditions, the effect of tax concessions will be concentrated on promoting the salary level of grassroots staff and helping enterprises to cope with changes in the industrial environment. (2) Average salaries The salaries to entry-level employees refer to the basic salaries, fixed allowances and bonuses paid on a monthly basis. Payment-in-kind shall be discounted based on the actual prices and included into the regular salaries. Meanwhile, regular salaries should be calculated with annualized averages, as this legislation seeks to boost salary levels. The regular salaries to entry-level employees during the year are estimated with the monthly number of entry-level employees during the same year. Only when the average basis salaries during the year are higher than those in the prior year can the tax incentives be applicable. 3. Tax incentive effects Applying this article, SMEs can deduct their business income taxes each year up to 130% of salary increase for existing entry-level employees who are Taiwanese nationals, which are not as a result of statutory requirement for basic wage adjustments. However, it is not allowed to double count the increased personnel expenses for new headcounts applicable to the first and second paragraphs of the same article. V. Conclusions The funding scales and relatively weak financial structures are the factors that led SMEs be susceptible influenced by supply change dynamics and business cycles. To the extent that is suppressing the flexible in capital utilization for SMEs, also influencing on the sustainability of SMEs. Differ from government subsidies require budgeting, reviewing and implementations, there are complications regarding the allocation of administrative resources. Therefore, it is important to plan for tax incentives in order to stimulate R&D, innovation and job creation by SMEs and ultimately make SMEs more competitive. The tax incentives to SMEs amended in 2016 by the Small and Medium Enterprise Administration are known for the following: (I) The lowering of thresholds for tax reductions of R&D expenses in order to encourage SMEs to invest in R&D activities with a “certain degree” of innovativeness and enhance the momentum for SMEs to upgrade and transform themselves; (II) Deferral the income taxations on the transfer of intellectual properties for equity, in order to encourage application and utilization of such intellectual properties, provide incentives for R&D programs or innovations by individuals and SMEs. This also creates a catalyst for industry upgrade; (III) Tax deductions for the employment of new headcounts or the increase of employee wages during the time the economic indicators have reached a certain threshold and based on the health of the investment environment. This is to encourage company investments and capital increases in Taiwan and mitigate the volatility of economic cycles, in order to get ready for business improvement. The above tax incentive programs, i.e. tax deductions for R&D and innovations; deferral of taxations on the transfer of intellectual properties for equity; tax deductions for the hiring of new headcounts and the increase of employee salaries, are meant to boost the investment from SMEs and the competitiveness of SMEs. The Act for Development of Small and Medium Enterprises seeks to reduce tax burdens of SMEs actively investing for their future and competitive advantages. Tax incentives help to mitigate the adverse effect of the economy on the business environment. It is also the fostering of the sources of business income tax revenues for the government. This is the very purpose of the Act for Development of Small and Medium Enterprises. [1]White Paper on Small and Medium Enterprises in Taiwan, 2018, p21 (November 9, 2018) published by the Ministry of Economic Affairs [2]Pursuant to the authorization conferred by Article 35 of the Act for Development of Small and Medium Enterprises, the Ministry of Economic Affairs has announced the Regulations Governing the Reduction of Expenditures for Small and Medium Enterprises Research and Development as Investment. [3]Article 2 on the definition of SMEs. The abovementioned criterion is universally applicable to the Act for Development of Small and Medium Enterprises. It also applies to the eligibility of tax incentives to be introduced in this paper unless otherwise specified. [4]Official Letter Economic-Business No. 10304605790, Ministry of Economic Affairs [5]Official Letter Taiwan-Finance No. 10300207480, Ministry of Finance [6]“Assessment of the Taxations under Article 35, Article 35-1, the first paragraph and the second paragraph of Article 36-2, the Act for Development of Small and Medium Enterprises” published by the Small and Medium Enterprise Administration, Ministry of Economic Affairs, pages 15-17, https://www.moeasmea.gov.tw/files/2670/93B9AF54-84E2-4293-A5CA-EA7DD9FAA05A(most recently browsed date September 9, 2019). [7]Order of Interpretation Economics-Business No. 104004602510 from the Ministry of Economic Affairs: “Second, on the day when the economic indicator has reached the threshold, the paid-in capital of the new business should be at least NT$500,000 and there is no need to instill additional capital during the period when tax incentives are applicable. For existing businesses, there is no limitation on the number of capital increases during the applicable period. So long as the cumulative increase in capital reaches NT$500,000 and new employees are hired during the same fiscal year or during the prior fiscal year.” [8]Paragraph 1, Article 2 of the Regulations for the Tax Preferences Provided to Small and Medium-sized Enterprises on Additional Wage Payment
Introduction to the “Public Procurement for Startups” mechanismIntroduction to the “Public Procurement for Startups” mechanism I.Backgrounds According to the EU’s statistics, government procurement budget accounted for over 14% of GDP. And, according to the media report, the total amount of government procurement in Taiwan in 2017 accounted for nearly 8%. Therefore, the government’s procurement power has gradually become a policy tool for the government to promote the development of innovative products and services. In 2017, the Executive Yuan of the R.O.C.（Taiwan）announced a government procurement policy named “Government as Good Partners with Startups （政府成為新創好夥伴）”[1] to encourage government agencies and State-owned Enterprises to procure and adopt innovative goods or services provided by startups. This policy was subsequently implemented through an action plan named “Public Procurement for Startups”（新創採購）[2] by the Small and Medium Enterprise Administration（SMEA）.The action plan mainly includes two important parts：One created the procurement process for startups to enter the government contracts market through inter-entities contracts. The other accelerated the collaboration of the government agencies and startups through empirical demonstration. II.Facilitating the procurement process for startups to enter the government market In order to help startups enter the government contracts market in a more efficient way, the SMEA conducts the procurement of inter-entity supply contracts with suppliers, especially startups, for the supply of innovative goods or services. An inter-entity supply contract[3] is a special contractual framework, under which the contracting entity on behalf of two or more other contracting parties signs a contract with suppliers and formulates the specifics and price of products or services provided through the public procurement process. Through the process of calling for tenders, price competition and so on, winning tenderers will be selected and listed on the Government E-Procurement System. This framework allows those contracting entities obtain orders and acquire products or services which they need in a more efficient way so it increases government agencies’ willingness to procure and use innovative products and services. From 2018, the SMEA started to undertake the survey of innovative products and services that government agencies usually needed and conducted the procurement of inter-entity supply contracts for two rounds every year. As a result, the SMEA plays an important role to bridge the demand and supply sides for innovative products or services by means of implementing the forth-mentioned survey and procurement process. Moreover, in order to explore more innovative products and services with high quality and suitable for government agencies and public institutions, the SMEA actively networked with various stakeholders, including incubators, accelerators, startups mentoring programs sponsored by private and public sectors and so on. Initially the items to be procured were categorized into four themes which were named the Smart Innovations, the Smart Eco, the Smart Healthcare, and the Smart Security. Later, in order to show the diversity of the innovation of startups which response well to various social issues, from 2019, the SMEA introduced two new theme solicitations titled the Smart Education and the Smart Agriculture to the inter-entities contracts. Those items included the power management systems, the AI automated recognition and image warning system, the chatbot for public service, unmanned flying vehicles, aerial photography services and so on. Take the popular AI image warning system as an example, the system is used by police officers to make instant evidence searching and image recording. Other government agencies apply the innovative system to the investigation of illegal logging and school safety surveillance. Moreover, the SMEA has also offered subsidy for local governments tobuy those items provided by startups. That is the coordinated supporting measure which allows startups the equal playing field to compete with large companies. The Subsidy scheme is based on the Guideline for Subsidies on Procurement of Innovative Products and Services[3] (approved by the Executive Yuan on March 29, 2018 and revised on Feb. 20, 2021). In the Guideline, “innovative products and services” refer to the products, technologies, labor, service flows or items and services rendered with creative activities through deploying scientific or technical means and a certain degree of innovations by startups with less than five years in operation. Such innovative products and services are displayed for the inter-entity supply contractual framework administered by the SMEA for government procurement. III.Accelerating the collaboration of the government agencies and startups through empirical demonstration To assist startups to prove their concepts or services, and become more familiar with the governemnrt’s needs, the SMEA also created a mechanism called the “Solving Governmental Problems by Star-up Innovation”（政府出題˙新創解題）. It plans to collect government agencies’ needs, and then solicit innovative proposals from startups. After their proposals are accepted, startups will be given a grant up to one million NT dollars to conduct empirical studies on solution with government agencies for about half a year. Take the cooperation between the “Taoyuan Long Term Care Institute for Older People and the Biotech Startup” for example, a care system with sanitary aids was introduced to provide automatic detection, cleanup and dry services for the patients’discharges, thus saving 95% of cleaning time for caregivers. In the past, caregivers usually spent 4 hours on the average in inspecting old patients, cleaning and replacing their bedsheets as their busy daily routines. Inadequate caregivers makes it difficult to maintain the care quality. If the problem was not addressed immediately, it would make the life of old patients more difficult. IV.Achievements to date Since the promotion of the products and services of the startups and the launch of the “Public Procurement for Startups” program in 2018, 68 startups, with the SMEA’s assistance, have entered the government procurement contracts market, and more than 100 government agencies have adopted the innovative resolutions. With the encouragement for them in adopting and utilizing the fruits of the startups, it has generated more than NT$150 million in cooperative business opportunities. V.Conclusions While more and more startups are obtaining business opportunities from the favorable procurement process, constant innovation remains the key to success. As such, the SMEA has regularly visited the government agencies-buyers to obtain feedbacks from startups so as to adjust and optimize the innovative products or services. The SMEA has also regularly renewed the specifics and items of the procurement list every year to keep introducing and supplying high-quality products or services to the government agencies. [1] Policy for investment environment optimization for Startups（2017）,available athttps://www.ndc.gov.tw/nc_27_28382.（last visited on July 30, 2021 ) [2] https://www.spp.org.tw/spp/（last visited on July 30, 2021 ) [3] Article 93 of Government Procurement Act：I An entity may execute an inter-entity supply contract with a supplier for the supply of property or services that are commonly needed by entities. II The regulations for a procurement of an inter-entity supply contract, the matters specified in the tender documentation and contract, applicable entities, and the related matters shall be prescribed by the responsible entity. [4] https://law.moea.gov.tw/LawContent.aspx?id=GL000555（last visited on July 30, 2021）
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