The Tax Benefit of “Act for Establishment and Administration of Science Parks” and the Relational Norms for Innovation

The Tax Benefit of “Act for Establishment and Administration of Science Parks” and the Relational Norms for Innovation

  “Act for Establishment and Administration of Science Parks” was promulgated in 1979, and was amended entirely in May 15, 2018, announced in June 6. The title was revised from “Act for Establishment and Administration of Science ‘Industrial’ Parks” to “Act for Establishment and Administration of Science Parks” (it would be called “the Act” in this article). It was a significant transition from traditional manufacture into technological innovation.

  For encouraging different innovative technology enter into the science park, there is tax benefit in the Act. When the park enterprises import machines, equipment, material and so on from foreign country, the import duties, commodity tax, and business tax shall be exempted; moreover, when the park enterprises export products and services, it will have given favorable business and commodity tax free.[1] Furthermore, the park bureaus also exempt collection of land rent.[2] If they have approval for importing or exporting products, they do not need to apply for permission.[3] In the sub-law, there is also regulations of bonding operation.[4] To sum up, for applying the benefit of the act, enterprises approved for establishment in science parks still require to manufacture products. Such regulations are confined to industrial industry. Innovative companies dedicate in software, big data, or customer service, rarely gain benefits from taxation.

  In other norms,[5] there are also tax deduction or exemption for developing innovative industries. Based on promoting innovation, the enterprises following the laws of environmental protection, laborers’ safety, food safety and sanitation,[6] or investing in brand-new smart machines for their own utilize,[7] or licensing their intellectual property rights,[8] can deduct from its taxable income. In addition, the research creators from academic or research institutions,[9] or employee,[10] can declare deferral of the income tax payable for the shares distributed. In order to assist new invested innovative enterprises,[11] there are also relational benefit of tax. For upgrading the biotech and new pharmaceuticals enterprises, when they invest in human resource training, research and development, they can have deductible corporate income tax payable.[12] There is also tax favored benefits for small and medium enterprises in using of land, experiment of research, technology stocks, retaining of surplus, and additional employees hiring.[13] The present norms of tax are not only limiting in space or products but also encouraging in “research”. In other word, in each steps of the research of innovation, the enterprises still need to manufacture products from their own technology, fund and human resources. If the government could encourage open innovation with favored taxation, it would strengthen the capability of research and development for innovative enterprises.

  Supporting the innovation by taxation, the government can achieve the goal of scientific development more quickly and encourage them accepting guidance. “New York State Business Incubator and Innovation Hot Spot Support Act” can be an example, [14]the innovative enterprises accepting the guidance from incubators will have the benefit of tax on “personal income”, “sales and use” and “corporation franchise”. Moreover, focusing on key industries and exemplary cases, there are also the norms of tax exemption and tax abatement in China for promoting the development of technology.[15]The benefit of tax is not only in research but also in “the process of research”.

  To sum up, the government of Taiwan provides the benefit of tax for advancing the competition of outcomes in market, and for propelling the development of innovation. In order to accelerate the efficiency of scientific research, the government could draw lessons from America and China for enacting the norms about the benefit of tax and the constitution of guidance.

 

[1] The Act §23.

[2] Id. §24.

[3] Id. §25.

[4] Regulations Governing the Bonding Operations in Science Parks.

[5] Such as Act for Development of Small and Medium Enterprises, Statute for Industrial Innovation, Act for the Development of Biotech and New Pharmaceuticals Industry.

[6] Statute for Industrial Innovation §10.

[7] Id. §10-1.

[8] Id. §12-1.

[9] Id. §12-2.

[10] Id. §19-1.

[11] Id. §23-1, §23-2, §23-3.

[12] Act for the Development of Biotech and New Pharmaceuticals Industry §5, §6, §7.

[13] Act for Development of Small and Medium Enterprises Chapter 4: §33 to §36-3.

[14] New York State Department of Taxation and Finance Taxpayer Guidance Division, New York State Business Incubator and Innovation Hot Spot Support Act, Technical Memorandum TSB-M-14(1)C, (1)I, (2)S, at 1-6 (March 7, 2014), URL:http://www.wnyincubators.com/content/Innovation%20Hot%20Spot%20Technical%20Memorandum.pdf (last visited:December 18, 2019).

[15] Enterprise Income Tax Law of the People’s Republic of China Chapter 4 “Preferential Tax Treatments”: §25 to §36 (2008 revised).

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※The Tax Benefit of “Act for Establishment and Administration of Science Parks” and the Relational Norms for Innovation,STLI, https://stli.iii.org.tw/en/article-detail.aspx?no=55&tp=2&i=168&d=8370 (Date:2024/11/13)
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A Before and After Impact Comparison of Applying Statute for Industrial Innovation Article 23-1 Draft on Venture Capital Limited Partnerships

A Before and After Impact Comparison of Applying Statute for Industrial Innovation Article 23-1 Draft on Venture Capital Limited Partnerships I. Background   Because the business models adopted by Industries, such as venture capital, film, stage performance and others, are intended to be temporary entities, and the existing business laws are not applicable for such industries,[1] the Legislature Yuan passed the “Limited Partnership Act” in June 2015,[2] for the purpose of encouraging capital injection into these industries. However, since the Act was passed, there are currently only nine limited partnerships listed on the Ministry of Economic Affairs' limited partnership information website. Among them, “Da-Zuo Limited Partnership (Germany) Taiwan Branch” and “Stober Antriebstechnik Limited Partnership (Germany) Taiwan Branch”, are branch companies established by foreign businesses, the remaining seven companies are audio video production and information service businesses. It is a pity that no venture capital company is adopting this format.[3]   In fact, several foreign countries have set up supporting measures for their taxation systems targeting those business structures, such as limited partnerships. For example, the pass-through taxation method (or referred to as single entity taxation) is adopted by the United States, while Transparenzprinzip is used by Germany. These two taxation methods may have different names, but their core ideas are to pass the profits of a limited partnership to the earnings of partners.[4] However, following the adoption of the Limited Partnership Act in Taiwan, the Ministry of Finance issued an interpretation letter stating that because the current legal system confers an independent legal entity status to the business structure of a limited partnership, it should be treated as a profit-seeking business and taxed with Profit-Seeking Enterprise Income Tax.[5] Therefore, to actualize the legislative objective of encouraging innovative businesses organized under tenets of the Limited Partnership Act, the Executive Yuan presented a draft amendment for Article 23-1 of the Statute for Industrial Innovation (hereinafter referred to as the Draft), introducing the "Pass Through Taxation Principle" as adopted by several foreign countries. That is, a Limited Partnership will not be levied with the Profit-Seeking Enterprise Income Tax, but each partner will file income tax reports based on after-profit-gains from the partnership that are passed through to each partner. It is expected that the venture capital industry will now be encouraged to adopt the limited partnership structure, and thus increase investment capital in new ventures. II. The Pass Through Taxation Method is Applicable to Newly Established Venture Capital Limited Partnerships 1. The Requirements and Effects   (1) The Requirements   According to the provisions of Article 23-1 Paragraph 3 of the Draft, to be eligible for Pass Through Taxation, newly established venture capital limited partnerships must meet the following requirements: 1. The venture capital limited partnerships are established between January 1, 2017 and December 31, 2019. 2. Investment threshold of the total agreed capital contribution, total received capital contribution, and accumulated total capital contribution, within five years of the establishment of venture capital limited partnerships: Total Agreed Capital Contribution in the Limited Partnership Agreement Total Received Capital Contribution Accumulated Investment Amount for Start-up Companies The Year of Establishment 3 hundred million ✕ ✕ The Second Year ✕ ✕ The Third Year 1 hundred million ✕ The Fourth Year 2 hundred million Reaching 30 percent of the total received capital contribution of the year or 3 hundred million NT dollars. The Fifth Year 3 hundred million 3. The total amount, that an overseas company applies in capital and investments in actual business operations in Taiwan, reaches 50% of its total received capital contribution of that year. 4. In compliance with government policies. 5. Reviewed and approved by the central competent authority each year.   (2) The Effects   The effects of applying the provisions of Article 23-1 Paragraph 3 of the Draft are as follows: 1. Venture capital limited partnerships are exempt from the Profit-Seeking Enterprise Income Tax. 2. Taxation method for partners in a limited partnership after obtaining profit gains: (1) Pursuant to the Income Tax Act, Individual partners and for-profit business partners are taxed on their proportionally-calculated, distributed earnings. (2) Individual partners and foreign for-profit business partners are exempt from income tax on the stock earnings distributed by a limited partnership. 2. Benefit Analysis Before and After Applying Pass Through Taxation Method   A domestic individual A, a domestic profit-making business B, and a foreign profit-making business C jointly form a venture capital limited partnership, One. The earnings distribution of the company One is 10%, 80% and 10% for A, B, and C partners, respectively. The calculated earnings of company One are one million (where eight hundred thousand are stock earnings, and two hundred thousand are non-stock earnings). How much income tax should be paid by the company One, and partners A, B, and C?   (1) Pursuant to the Income Tax Act, before the amended draft: 1. One Venture Capital Limited Partnership Should pay Profit-Seeking Enterprise Income Tax = (NT$1,000,000 (earning) - NT$500,000[6])x12% (tax rate[7])=NT$60,000 2. Domestic Individual A Should file a comprehensive income report with business profit income =(NT$1,000,000-NT$60,000) x 10% (company One draft a voucher for net amount for A) + NT$60,000÷2×10% (deductible tax rate)= NT$97,000 Tax payable on profit earnings=NT$91,500×5%(tax rate)=NT$4,850 Actual income tax paid=NT$4,850 - NT$60,000÷2×10% (deductible tax rate) =NT$1,485 3. Domestic For-Profit Business B Pursuant to the provisions of Article 42 of the Income Tax Act, the net dividend or net income received by a profit-seeking company is not included in the income tax calculation. 4. Foreign For-Profit Business C Tax paid at its earning source=(NT$1,000,000 - NT$60,000) ×10% (earning distribution rate) ×20% (tax rate at earning source)=NT$18,800   (2) Applying Pass Through Taxation Method After Enacting the Amendment 1. One Venture Capital Limited Partnership No income tax. 2. Domestic Individual A Should pay tax=NT$800,000 (non-stock distributed earnings)×10% (earning distribution rate)×5% (comprehensive income tax rate)=NT$1,000 3. Domestic For-Profit Business B Pursuant to the provisions of Article 42 of the Income Tax Act, the net dividend or net income received by a profit-seeking company is not included in the income tax calculation. 4. Foreign For-Profit Business C Tax paid at its earning source=NT$800,000 (non-stock distributed earnings)×10%(earning distribution rate)×20% (tax rate at earning source)=NT$4,000   The aforementioned example shows that under the situation, where the earning distribution is the same and tax rate for the same taxation subject is the same, the newly-established venture capital limited partnerships and their shareholders enjoy a more favorable tax benefit with the adoption of pass through taxation method: Before the Amendment After the Amendment Venture Capital Limited Partnership NT$60,000 Excluded in calculation Shareholders Domestic Individual NT$1,850 NT$1,000 Domestic For-Profit Business Excluded in calculation Excluded in calculation Foreign For-Profit Business NT$18,800 NT$4,000 Sub-total NT$80,650 NT$5,000 III. Conclusion   Compared to the corporate taxation, the application of the pass through taxation method allows for a significant reduction in tax burden. While developing Taiwan’s pass through tax scheme, the government referenced corporate taxation under the U.S. Internal Revenue Code (IRC), where companies that meet the conditions of Chapter S can adopt the “pass through” method, that is, pass the earnings to the owner, with the income of shareholders being the objects of taxation;[8] and studied the "Transparenzprinzip" adopted by the German taxation board for partnership style for-profit businesses. Following these legislative examples, where profits are identified as belonging to organization members,[9] the government legislation includes the adoption of the pass through taxation scheme for venture capital limited partnerships in the amended draft of Article 23-1 of the Statute for Industrial Innovation, so that the legislation is up to international standards and norms, while making an important breakthrough in the current income tax system. This is truly worthy of praise. [1] The Legislative Yuan Gazette, Vol. 104, No. 51, page 325. URL:http://misq.ly.gov.tw/MISQ//IQuery/misq5000Action.action [2] A View on the Limited Partnership in Taiwan, Cross-Strait Law Review, No. 54, Liao, Da-Ying, Page 42. [3] Ministry of Economic Affairs - Limited Partnership Registration Information URL: http://gcis.nat.gov.tw/lmpub/lms/dir.jsp?showgcislocation=true&agencycode=allbf [4] Same as annotate 2, pages 51-52. [5] Reference Letter of Interpretation dated December 18, 2015, Tai-Cai-Shui Zi No. 10400636640, the Ministry of Finance [6] First half of Paragraph 1 of Article 8 of the Income Basic Tax Act [7] Second half of Paragraph 1 of Article 8 of the Income Basic Tax Act [8] A Study on the Limited Partnership Act, Master’s degree thesis, College of Law, Soochow University, Wu, Tsung-Yeh, pages 95-96. [9] Reference annotate 2, pages 52.

Executive Yuan Promotes Free Economic Demonstration Zone

I.Background To promote more liberal and internationalized development of Taiwan economy, Premier of Executive Yuan approved the “Free Economic Demonstration Zone Plan” on April 26, 2013. Meanwhile, an Executive Yuan Working Group on Promotion of Economic Demonstration Zone is set up to accelerate the mapping out of the promotion programs as well as detailed action plans. The first phase of the Free Economic Demonstration Zone is to be officially initiated in July. According to the “Free Economic Demonstration Zone Plan”, the relevant laws and provisions regarding the flowing of human and financial capitals, and of logistics, will be loosen up to a great degree, based on the core ideas of liberalization, internationalization, and forwardness. Other related measures such as offering of lands and taxation would also be made, in order to attract capitals from both the inside and outside of the country. In addition, the Free Economic Demonstration Zone will first develop economic activities such as intelligent computing, international medicine services, value-added agriculture and cooperation among industries, to accelerate the transformation of the industrial structure of Taiwan. In order to construe an excellent environment for business of full liberalization and internationalization, the promotion strategies will be focused on “break-through of legal frameworks and innovations of management mechanisms”. II.Content of the Plan To accelerate the promotion process, the Free Economic Demonstration Zone will be conducted in two phases. The first phase is centered on the existing free trade port areas, including five ports and one airport, incorporated with the nature of “being inside the country border but outside the tariff zone”. All the industrial parks in the near counties and cities will also be integrated. The promotion will be set out simultaneously in the north, middle and south of Taiwan. The effects of the promotion are expected to be magnified by fully utilizing the resources and the unique characters of industries of each region. Moreover, the promulgation of a special legislation on the Free Economic Demonstration Zone would be facilitated in the future. After this special legislation is passed, the set-ups of demonstration zones can be applied by authorities either of central or of local government and the related promotion works of the second phase will be unfolded immediately. According to the Executive Yuan, the Free Economic Demonstration Zone will be beneficial in terms of creating positive conditions for Taiwan to participate in regional trade organizations and attract both local and foreign investment, injecting new movement into the economic growth of Taiwan. III.Recent Development In addition, on August 8, 2013, relevant discussions on “Furtherance Plan for Free Economic Demonstration Zone Phase One” are further unfolded in the Executive Yuan conference. In addition, the Premier also indicates, that the furtherance of the Free Economic Demonstration Zone (hereafter: FEDZ) is divided into two phases. The first phase starts from the moment that the Plan is approved till the related special legislation is passed and promulgated. In this phase, the relevant tasks can be achieved through the ways of promulgation of administrative orders. On the other hand, the tasks concerning taxation benefits and other parts that involve legislation will not able to be initiated till the second phase of the Plan. For those tasks, the Council for Economic Planning and Development is asked to complete the drafting of this special legislation and related procedures for registering it into the Executive Yuan, together with the Ministry of Economic Affairs and other concerned agencies, in the hope that the related legislation works of the Executive Yuan can be completed before the end of this year. In respect of “Furtherance Plan for Free Economic Demonstration Zone Phase One”, Premier Jiang further points out, that FEDZ is a model incorporates the concept of “being inside the country border but outside the tariff zone” and the idea of “combining the stores upfront and the factories behind, outsourcing manufactures”. In this way, the hinterland of a port can be expended and magnified effects to be achieved through using the resources provided by the factory in behind. Under this pattern, the expansion effects that cities and counties such as New Taipei City and Changhua Country fight for, can be further extended by this concept of “factories in the back”. As for Port of Anping, over which Tainan City government has proactively fought for, can be listed as a demonstration zone once the Executive Yuan approved it as free trade port zone. In the future, other places that are with forward-looking industry and suitable can still be enlisted. Premier Jiang further expresses that, there are four demonstration industries in the first phase, including intelligent computing, international medicine services, value-added agriculture and cooperation among industries. Yet, he also points out that the demonstration of liberalized economy is a concept of “4+N”. It means that the demonstration will not be limited to the scope of these four industries. Other industries that match up with the idea of liberalization, internationalization and foresight can all be incorporated into FEDZ through continuing examination. Moreover, Premier Jiang later mentions on August 14th, that FEDZ is a crucial task for the government at this moment. He thus requests the Ministry of Economic Affairs, Ministry of Transportation and Communications, Ministry of Health and Welfare, and the Council of Agriculture, to enhance the training and service quality of staffers of the single service window of furtherance of FEDZ. Moreover, Premier Jiang additionally indicated in November, that the scope of the FEDZ will include Pingtung Agricultural Biotechnology Park and Kaohsiung Free Trade Port Area. The combination of the two will facilitate adding value to the agriculture in Taiwan and put momentum into quality agriculture, making the high-quality agricultural products of our country being sold to all over the world with swift logistic services. Premier Jiang also mentioned, that in order to avoid Taiwan being marginalized amid regional integrations of global economies, the government is facilitating industries of potentials by proactively promote the FEDZ. The current approach is to expend the original free trade port area with legislative bases, creating the demonstration zones of free economy by combing original establishments such as Pingtung Agricultural Biotechnology Park. If this approach and system is proved feasible, the next step would be promoting it to island-wide, making the whole nation open-up. IV.Conclusion In the past decade, the economic development in Taiwan, compared to neighboring economic zones such as Hong Kong, Korean or Singapore, was indeed stagnant. It is thus a positive move for the government to put great efforts in promoting FEDZ, in the hope that the liberalization and internationalization of the economy of this country can therefore be significantly improved. Yet, some commentators are of slightly more skeptical opinions, reminding that in terms of the tax relaxation in the Plan, similar approach was already taken by the government before, which did not lead to the expected outcome. In sum, it still remains as a continuing task for us and for the administration as well, to ponder on how Taiwan can find out its own unique strength in the face of global competition. How we can attract more international partners, to create mutual economic benefits. The FEDZ is undoubtedly a first step. Nevertheless, challenges are still ahead of the government, as to how to take many more steps in the future, in order to make Taiwan to march on the stage of the world again.

Suggestions for MOEA Trial Program of Voluntary Base Green Electricity Framework

On March 6, 2014, The Energy Bureau of Ministry of Economic Affairs has published a pre-announcement on a Trial Program of Voluntary Base Green Electricity Framework (hereafter the Trial Program) and consulted on public opinion. In light of the content of the Trial Program, STLI provide the following suggestions for future planning of related policy structure. The institution of green electricity as established by the Trial Program is one of the policies for promoting renewable energy. Despite its nature of a trial, it is suggested that a policy design with a more options will be beneficial to the promotion of renewable energy, in light of various measures that have been undertaken by different countries. According to the Trial Program, the planned price rate of the green electricity is set on the basis of the total sum that the electricity subsidy to be paid by the Renewable Energy Development Fund divided by the total sum of electricity generated reported by Tai Power Company. The Ministry of Economic Affairs will adjust the price rate of the green electricity on the base of both how many users subscribe to the green electricity and the price rate of international green electricity market rate and, then announce the price rate in October of each year if not otherwise designated. In addition, according to the planned Trial Program, the unit for the subscription of green electricity is 100 kW·h. It is further reported that the current planned price rate for green electricity is 1.06 NTD/ kW·h. And it shall be 3.95 NTD/ kW·h if adding up with the original price rate, with an 37% increase in price per kW·h. In terms of the existing content of the Trial Program, only single price rate will be offered during the trial period. In this regard, we take the view that it would be beneficial to take into account similar approaches that have been taken by other countries. In Germany, for instance, the furtherance of renewable energy is achieved by the obligatory charge(EEG Umlage)together with the voluntary green electricity program provided by the private electricity retail sectors. According to German Ministry of Economics and Energy (BMWi), the electricity price that the German public pays includes three parts: (1)the cost of the purchase and distribution of the electricity, including the margin of the electricity provider(2)regulated network fees, including those for the operation as well as for the measurement works of the meters(3)charges imposed by the government, including tax and the abovementioned obligatory charge for renewable energy(EEG Umlage), as prescribed by the Act on Renewable Energy (Gesetz für den Vorrang Erneuerbarer Energien, also known as Erneuerbare-Energien-Gesetz - EEG). In terms of how it is implemented on the ground, an example of the green electricity price menu program from the German electricity retail company, Vattenfall, is given in the following. In all price menu programs provided by Vattenfall in Berlin, for instance, 29.4% of the electricity comes from renewable energy as a result of the implementation of the Act on Renewable Energy. Asides from the abovementioned percentage as facilitated by the existing obligatory measures, the electricity retail companies in Germany further provide the price menus that are “greener”. For example, among the options provided by Vattenfall(Chart I), in terms of the 12-month program, one can choose the menu which consist of 39.4% of renewable energy, with the price of 0.2642 Euro/ kW·h(about 10.96 NTD/ kW·h). One can also opt for a menu of which the energy supply comes from 100% of renewable energy, with the price of 0.281 Euro/ kW·h(about 11.66 NTD/ kW·h) Chart I : Green Electricity Price Menus provided by Vattenfall in Berlin, Germany Percentage of Renewable Energy Supply Percentage of Renewable Energy Supply Electricity Price 12-month program 39.4% 0.2642 Euro/ kW·h(about 10.96 NTD/ kW·h) All renewable energy program 100% 0.281 Euro/ kW·h(about 11.66 NTD/ kW·h) Source:Vattenfall website, translated and reorganized by STLI, April 214. In addition, Australia also has similar programs on green electricity that is voluntary-base and with the goal of promoting renewable energy, reducing carbon emission, and transforming energy economy. Since 1997, the GreenPower in Australia is in charge of audition and certification of the retail companies and power plants on green electricity. The Australian model uses the certification mechanism conducted by independent third party, to ensure the green electricity purchased by end users in compliance with specific standards. As for the options for the price menu, take the programs of green electricity offered by the Australian retail company Origin Energy for example, user can choose 6 kinds of different programs, which are composed by renewable energy supply of respectively 10%, 20%, 25%, 50%, 75%, and 100%, at various price rates (shown in Chart II). Chart II Australian Green Electricity Programs provided by Origin Energy Percentage of renewable Energy Electricity Price per kW·h 0 0.268 AUD(About 7.52 NTD) 10% 0.274868 AUD(About 7.69 NTD) 20% 0.28006 AUD(About 7.84 NTD) 25% 0.28292 AUD(About 7.92 NTD) 50% 0.2838 AUD(About 7.95 NTD) 100% 0.2992 AUD(About 8.37 NTD) Source:Origin Energy website, translated and reorganized by STLI, April 214. Given the information above, it can thus be inferred that the international mechanism for the promotion of green electricity often include a variety of price menus, providing the user more options. Such as two difference programs offered by Vattenfall in Germany and six various rates for green electricity offered by Origin Energy in Australia. It is the suggestion of present brief that the Trial Program can reference these international examples and try to offer the users a greater flexibility in choosing the most suitable programs for themselves.

The use of automated facial recognition technology and supervision mechanism in UK

The use of automated facial recognition technology and supervision mechanism in UK I. Introduction   Automatic facial recognition (AFR) technology has developed rapidly in recent years, and it can identify target people in a short time. The UK Home Office announced the "Biometrics Strategy" on June 28, 2018, saying that AFR technology will be introduced in the law enforcement, and the Home Office will also actively cooperate with other agencies to establish a new oversight and advisory board in order to maintain public trust. AFR technology can improve law enforcement work, but its use will increase the risk of intruding into individual liberty and privacy.   This article focuses on the application of AFR technology proposed by the UK Home Office. The first part of this article describes the use of AFR technology by the police. The second part focuses on the supervision mechanism proposed by the Home Office in the Biometrics Strategy. However, because the use of AFR technology is still controversial, this article will sort out the key issues of follow-up development through the opinions of the public and private sectors. The overview of the discussion of AFR technology used by police agencies would be helpful for further policy formulation. II. Overview of the strategy of AFR technology used by the UK police   According to the Home Office’s Biometrics Strategy, the AFR technology will be used in law enforcement, passports and immigration and national security to protect the public and make these public services more efficient[1]. Since 2017 the UK police have worked with tech companies in testing the AFR technology, at public events like Notting Hill Carnival or big football matches[2].   In practice, AFR technology is deployed with mobile or fixed camera systems. When a face image is captured through the camera, it is passed to the recognition software for identification in real time. Then, the AFR system will process if there is a ‘match’ and the alarm would solicit an operator’s attention to verify the match and execute the appropriate action[3]. For example, South Wales Police have used AFR system to compare images of people in crowds attending events with pre-determined watch lists of suspected mobile phone thieves[4]. In the future, the police may also compare potential suspects against images from closed-circuit television cameras (CCTV) or mobile phone footage for evidential and investigatory purposes[5].   The AFR system may use as tools of crime prevention, more than as a form of crime detection[6]. However, the uses of AFR technology are seen as dangerous and intrusive by the UK public[7]. For one thing, it could cause serious harm to democracy and human rights if the police agency misuses AFR technology. For another, it could have a chilling effect on civil society and people may keep self-censoring lawful behavior under constant surveillance[8]. III. The supervision mechanism of AFR technology   To maintaining public trust, there must be a supervision mechanism to oversight the use of AFR technology in law enforcement. The UK Home Office indicates that the use of AFR technology is governed by a number of codes of practice including Police and Criminal Evidence Act 1984, Surveillance Camera Code of Practice and the Information Commissioner’s Office (ICO)’s Code of Practice for surveillance cameras[9]. (I) Police and Criminal Evidence Act 1984   The Police and Criminal Evidence Act (PACE) 1984 lays down police powers to obtain and use biometric data, such as collecting DNA and fingerprints from people arrested for a recordable offence. The PACE allows law enforcement agencies proceeding identification to find out people related to crime for criminal and national security purposes. Therefore, for the investigation, detection and prevention tasks related to crime and terrorist activities, the police can collect the facial image of the suspect, which can also be interpreted as the scope of authorization of the  PACE. (II) Surveillance Camera Code of Practice   The use of CCTV in public places has interfered with the rights of the people, so the Protection of Freedoms Act 2012 requires the establishment of an independent Surveillance Camera Commissioner (SCC) for supervision. The Surveillance Camera Code of Practice  proposed by the SCC sets out 12 principles for guiding the operation and use of surveillance camera systems. The 12 guiding principles are as follows[10]: A. Use of a surveillance camera system must always be for a specified purpose which is in pursuit of a legitimate aim and necessary to meet an identified pressing need. B. The use of a surveillance camera system must take into account its effect on individuals and their privacy, with regular reviews to ensure its use remains justified. C. There must be as much transparency in the use of a surveillance camera system as possible, including a published contact point for access to information and complaints. D. There must be clear responsibility and accountability for all surveillance camera system activities including images and information collected, held and used. E. Clear rules, policies and procedures must be in place before a surveillance camera system is used, and these must be communicated to all who need to comply with them. F. No more images and information should be stored than that which is strictly required for the stated purpose of a surveillance camera system, and such images and information should be deleted once their purposes have been discharged. G. Access to retained images and information should be restricted and there must be clearly defined rules on who can gain access and for what purpose such access is granted; the disclosure of images and information should only take place when it is necessary for such a purpose or for law enforcement purposes. H. Surveillance camera system operators should consider any approved operational, technical and competency standards relevant to a system and its purpose and work to meet and maintain those standards. I. Surveillance camera system images and information should be subject to appropriate security measures to safeguard against unauthorised access and use. J. There should be effective review and audit mechanisms to ensure legal requirements, policies and standards are complied with in practice, and regular reports should be published. K. When the use of a surveillance camera system is in pursuit of a legitimate aim, and there is a pressing need for its use, it should then be used in the most effective way to support public safety and law enforcement with the aim of processing images and information of evidential value. L. Any information used to support a surveillance camera system which compares against a reference database for matching purposes should be accurate and kept up to date. (III) ICO’s Code of Practice for surveillance cameras   It must need to pay attention to the personal data and privacy protection during the use of surveillance camera systems and AFR technology. The ICO issued its Code of Practice for surveillance cameras under the Data Protection Act 1998 to explain the legal requirements operators of surveillance cameras. The key points of ICO’s Code of Practice for surveillance cameras are summarized as follows[11]: A. The use time of the surveillance camera systems should be carefully evaluated and adjusted. It is recommended to regularly evaluate whether it is necessary and proportionate to continue using it. B. A police force should ensure an effective administration of surveillance camera systems deciding who has responsibility for the control of personal information, what is to be recorded, how the information should be used and to whom it may be disclosed. C. Recorded material should be stored in a safe way to ensure that personal information can be used effectively for its intended purpose. In addition, the information may be considered to be encrypted if necessary. D. Disclosure of information from surveillance systems must be controlled and consistent with the purposes for which the system was established. E. Individuals whose information is recoded have a right to be provided with that information or view that information. The ICO recommends that information must be provided promptly and within no longer than 40 calendar days of receiving a request. F. The minimum and maximum retention periods of recoded material is not prescribed in the Data Protection Act 1998, but it should not be kept for longer than is necessary and should be the shortest period necessary to serve the purposes for which the system was established. (IV) A new oversight and advisory board   In addition to the aforementioned regulations and guidance, the UK Home Office mentioned that it will work closely with related authorities, including ICO, SCC, Biometrics Commissioner (BC), and Forensic Science Regulator (FSR) to establish a new oversight and advisory board to coordinate consideration of law enforcement’s use of facial images and facial recognition systems[12].   To sum up, it is estimated that the use of AFR technology by law enforcement has been abided by existing regulations and guidance. Firstly, surveillance camera systems must be used on the purposes for which the system was established. Secondly, clear responsibility and accountability mechanisms should be ensured. Thirdly, individuals whose information is recoded have the right to request access to relevant information. In the future, the new oversight and advisory board will be asked to consider issues relating to law enforcement’s use of AFR technology with greater transparency. IV. Follow-up key issues for the use of AFR technology   Regarding to the UK Home Office’s Biometrics Strategy, members of independent agencies such as ICO, BC, SCC, as well as civil society, believe that there are still many deficiencies, the relevant discussions are summarized as follows: (I) The necessity of using AFR technology   Elizabeth Denham, ICO Commissioner, called for looking at the use of AFR technology carefully, because AFR is an intrusive technology and can increase the risk of intruding into our privacy. Therefore, for the use of AFR technology to be legal, the UK police must have clear evidence to demonstrate that the use of AFR technology in public space is effective in resolving the problem that it aims to address[13].   The Home Office has pledged to undertake Data Protection Impact Assessments (DPIAs) before introducing AFR technology, including the purpose and legal basis, the framework applies to the organization using the biometrics, the necessity and proportionality and so on. (II)The limitations of using facial image data   The UK police can collect, process and use personal data based on the need for crime prevention, investigation and prosecution. In order to secure the use of biometric information, the BC was established under the Protection of Freedoms Act 2012. The mission of the BC is to regulate the use of biometric information, provide protection from disproportionate enforcement action, and limit the application of surveillance and counter-terrorism powers.   However, the BC’s powers do not presently extend to other forms of biometric information other than DNA or fingerprints[14]. The BC has expressed concern that while the use of biometric data may well be in the public interest for law enforcement purposes and to support other government functions, the public benefit must be balanced against loss of privacy. Hence, legislation should be carried to decide that crucial question, instead of depending on the BC’s case feedback[15].   Because biometric data is especially sensitive and most intrusive of individual privacy, it seems that a governance framework should be required and will make decisions of the use of facial images by the police. (III) Database management and transparency   For the application of AFR technology, the scope of biometric database is a dispute issue in the UK. It is worth mentioning that the British people feel distrust of the criminal database held by the police. When someone is arrested and detained by the police, the police will take photos of the suspect’s face. However, unlike fingerprints and DNA, even if the person is not sued, their facial images are not automatically deleted from the police biometric database[16].   South Wales Police have used AFR technology to compare facial images of people in crowds attending major public events with pre-determined watch lists of suspected mobile phone thieves in the AFR field test. Although the watch lists are created for time-limited and specific purposes, the inclusion of suspects who could possibly be innocent people still causes public panic.   Elizabeth Denham warned that there should be a transparency system about retaining facial images of those arrested but not charged for certain offences[17]. Therefore, in the future the UK Home Office may need to establish a transparent system of AFR biometric database and related supervision mechanism. (IV) Accuracy and identification errors   In addition to worrying about infringing personal privacy, the low accuracy of AFR technology is another reason many people oppose the use of AFR technology by police agencies. Silkie Carlo, director of Big Brother Watch, said the police must immediately stop using the AFR technology and avoid mistaking thousands of innocent citizens as criminals; Paul Wiles, Biometrics Commissioner, also called for legislation to manage AFR technology because of its accuracy is too low and the use of AFR technology should be tested and passed external peer review[18].   In the Home Office’s Biometric Strategy, the scientific quality standards for AFR technology will be established jointly with the FSR, an independent agency under the Home Office. In other words, the Home Office plans to extend the existing forensics science regime to regulate AFR technology.   Therefore, the FSR has worked with the SCC to develop standards relevant to digital forensics. The UK government has not yet seen specific standards for regulating the accuracy of AFR technology at the present stage. V. Conclusion   From the discussion of the public and private sectors in the UK, we can summarize some rules for the use of AFR technology. Firstly, before the application of AFR technology, it is necessary to complete the pre-assessment to ensure the benefits to the whole society. Secondly, there is the possibility of identifying errors in AFR technology. Therefore, in order to maintain the confidence and trust of the people, the relevant scientific standards should be set up first to test the system accuracy. Thirdly, the AFR system should be regarded as an assisting tool for police enforcement in the initial stage. In other words, the information analyzed by the AFR system should still be judged by law enforcement officials, and the police officers should take the responsibilities.   In order to balance the protection of public interest and basic human rights, the use of biometric data in the AFR technology should be regulated by a special law other than the regulations of surveillance camera and data protection. The scope of the identification database is also a key point, and it may need legislators’ approval to collect and store the facial image data of innocent people. Last but not least, the use of the AFR system should be transparent and the victims of human rights violations can seek appeal. [1] UK Home Office, Biometrics Strategy, Jun. 28, 2018, https://www.gov.uk/government/publications/home-office-biometrics-strategy (last visited Aug. 09, 2018), at 7. [2] Big Brother Watch, FACE OFF CAMPAIGN: STOP THE MET POLICE USING AUTHORITARIAN FACIAL RECOGNITION CAMERAS, https://bigbrotherwatch.org.uk/all-campaigns/face-off-campaign/ (last visited Aug. 16, 2018). [3] Lucas Introna & David Wood, Picturing algorithmic surveillance: the politics of facial recognition systems, Surveillance & Society, 2(2/3), 177-198 (2004). [4] Supra note 1, at 12. [5] Id, at 25. [6] Michael Bromby, Computerised Facial Recognition Systems: The Surrounding Legal Problems (Sep. 2006)(LL.M Dissertation Faculty of Law University of Edinburgh), http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.197.7339&rep=rep1&type=pdf , at 3. [7] Owen Bowcott, Police face legal action over use of facial recognition cameras, The Guardian, Jun. 14, 2018, https://www.theguardian.com/technology/2018/jun/14/police-face-legal-action-over-use-of-facial-recognition-cameras (last visited Aug. 09, 2018). [8] Martha Spurrier, Facial recognition is not just useless. In police hands, it is dangerous, The Guardian, May 16, 2018, https://www.theguardian.com/commentisfree/2018/may/16/facial-recognition-useless-police-dangerous-met-inaccurate (last visited Aug. 17, 2018). [9] Supra note 1, at 12. [10] Surveillance Camera Commissioner, Surveillance camera code of practice, Oct. 28, 2014, https://www.gov.uk/government/publications/surveillance-camera-code-of-practice (last visited Aug. 17, 2018). [11] UK Information Commissioner’s Office, In the picture: A data protection code of practice for surveillance cameras and personal information, Jun. 09, 2017, https://ico.org.uk/for-organisations/guide-to-data-protection/encryption/scenarios/cctv/ (last visited Aug. 10, 2018). [12] Supra note 1, at 13. [13] Elizabeth Denham, Blog: facial recognition technology and law enforcement, Information Commissioner's Office, May 14, 2018, https://ico.org.uk/about-the-ico/news-and-events/blog-facial-recognition-technology-and-law-enforcement/ (last visited Aug. 14, 2018). [14] Monique Mann & Marcus Smith, Automated Facial Recognition Technology: Recent Developments and Approaches to Oversight, Automated Facial Recognition Technology, 10(1), 140 (2017). [15] Biometrics Commissioner, Biometrics Commissioner’s response to the Home Office Biometrics Strategy, Jun. 28, 2018, https://www.gov.uk/government/news/biometrics-commissioners-response-to-the-home-office-biometrics-strategy (last visited Aug. 15, 2018). [16] Supra note 2. [17] Supra note 13. [18] Jon Sharman, Metropolitan Police's facial recognition technology 98% inaccurate, figures show, INDEPENDENT, May 13, 2018, https://www.independent.co.uk/news/uk/home-news/met-police-facial-recognition-success-south-wales-trial-home-office-false-positive-a8345036.html (last visited Aug. 09, 2018).

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