Research on Possible Artificial Intelligence Usage in Criminal Activities in Recent Years (2017-2018)
Artificial Intelligence has become a worldwide center topic that attracts lots of attention in recent years. Most topics emphasize on the application of this technology and its implication to the economic of human society. Fewer emphasize on the more technical part behind this technology. Mostly the society of human emphasizes on the bright side of this technology.
However, seldom do people talk about the possible criminal usage that exploits this technology. The dark side easily slips one’s mind when one is immersed in the joy of the light. And this is the goal of this paper to reveal some of this possible danger to the public, nowadays or in the future, to the readers.
I. What A.I. IS HERE: a brief history
First we will start by defining what we mean when referring to “Artificial Intelligence” in this paper.
First of all, the so-called “Artificial Intelligence” nowadays mainly refers to the “Deep Learning” algorithm invented by a group of computer scientists around 1980s, among which Geoffrey Everest Hinton is arguably the most well-known contributor. It is a kind of neural network that resembles the information processing and refinement in human brain, neurons and synapses.
However, the word A.I. , in its natural sense, contains more than just “Deep Learning” algorithm. Tracing back to 1950s, by the time when the computer was first introduced to the world, there already existed several kinds of neural networks.
These neural networks aims to bestow the machines the ability to classify, categorize a set of data. That is to give the machine the ability to make human-like reasoning to predict or to make induction concerning the attribute of a set of data.
Perceptron, as easy as it seems, was arguably the first spark of neural network. It resembled the route of coppers and wires in your calculator. However, due to its innate inability to solve problems like X-OR problem, soon it lost its appealing to the computer scientists. Scientists then turned their attention to a more mathematical way such as machine learning or statistics.
It wasn’t until 1980s and 2000s that the invention of deep learning and the advance of computing speed fostered the shift of the attention of the data scientist back to neural networks. However, the knowledge of machine learning still hold a very large share in the area of artificial intelligence nowadays.
In this sense, A.I. actually is but a illusive program or algorithm that resides in any kinds of physical hardware such as computer. And it comprises of deep learning, neural network and machine learning, as well as other types of intelligence system. In short, A.I. is a software that is not physical unless it is embedded in physical hardware.
Just like human brain, when the brain of human is damaged, we cannot make sound judgement. More worse, we might make harmful judgement that will jeopardize the society. Imagine a 70-year-old driving a car and he or she accidentally took the accelerator for the break and run into crowds. Also like human brain, when a child was taught to misbehave, he, when grown up, might duplicate his experience taught in his childhood. So is A.I.. As a machine, it can be turned into tools that facilitate our daily works, weapons that defend our land, and also tools that can be molded for criminal activities.
II. Types of Criminal Activities Concerning Possible Artificial Intelligence Usage:
1. Smart Virus
Probably the first thing that comes into minds is the development of smart virus that can mutate its innate binary codes so as to slip present antivirus software detection according to its past failure experience. In this case, smart virus can gather every information concerning the combination of “failure/success of intrusion” and “the sequence of its innate codes” and figure out a way to mutate its codes. Every time it fails to attack a system, it might get smarter next time. Under the massive data fathered across the world wide internet, it might have the potential to grow into an uncontrollable smart virus.
According to a report written in Harvard Business Review [1], such smart virus can be an automatic life form which might have the potential to cause world wide catastrophe and should not be overlooked. However, ironically, it seems that the only way to defend our system from this kind of smart virus is to deploy the smart detector which consists of the same algorithm as the smart virus does.
Once a security system is breached, any possible kinds of personal information is obtainable. The devastating outcome is a self-proved chain reaction.
2. Face Cheating
An another possible kind of criminal activity concerning the usage of artificial intelligence is the face cheating.
Face Lock has been widely-used nowadays, ranging from smart phones to personal computers. There is an increase in the usage of face lock due to its convenience and presumably hard-to-cheat technology. The most widely-used neural network in this technology is the famous Convolution Neural Network. It is a kind of neural network that mimics the human vision system and retina by using max-pooling algorithm. However there are still other types of neural networks capable of the same job such as Hinton Capsule, etc..
According to a paper by Google Brain [2], “adversarial examples based on perceptible but class-preserving perturbations can fool this multiple machine learning models also fool time-limited humans. But it cannot fool time-unlimited humans. So a machine learning models are vulnerable to adversarial examples: small changes to images can cause computer vision models to make mistakes such as identifying a school bus as an ostrich.”
Since the face detection system is sensitive to small perturbation in object-recognition. It might seem hard to cheat a face detection system with another similar yet different face.
However, just like the case in the smart virus, what makes artificial intelligence so formidable is not its ability to achieve high precision at the first try, but its ability to learn, refine, progress and evolve through numerous failure it tasted. Every failure will only make it smarter. Just like a smart virus, a cheater neural network might also adjust its original synapse and record the combination of “failure/success of intrusion” and “the mixture of the matrix of its innate synapse” and adjust the synapses to transform a fault face into a authentic face to cheat a face detection system, possibly making the targeted personal account widely available to all public faces through face perturbation and transformation.
A cheater neural network might also tunes its neurons in order to fit into the target face to cheat the face detection system.
3. Voice Cheating
An another possible kind of criminal activity concerning the usage of artificial intelligence is the voice cheating.
Just like Face Cheating, when a system is designed to be logged in by the authentic voice of the user, the same system can be fooled using similar voice that was generated using Artificial Intelligence.
4. Patrol Prediction
There is quite an unleash in the area of crime prediction using Artificial Intelligence. According to a paper in European Police Science and Research Bulletin [3], “Spatial and temporal methods appear as a very good opportunity to model criminal acts. Common sense reasoning about time and space is fundamental to understand crime activities and to predict some new occurrences. The principle is to take advantage of the past acknowledgment to understand the present and explore the future.”
In this sense, the police is able to track down possible criminal activities by predicting the possible location, time and methods of criminal activities by using Artificial Intelligence, lengthening the time of pre-action and saving the cost of unnecessary human labor.
Yet the same goes for criminal activities. The criminals is also able to track down the timing, location, and length of every patrol that the police makes. The criminal might be able to avoid certain route in order to achieve illegal deals or other types of criminal activities. Since fewer criminals use A.I. as a counter-weapon to the police, the detection system of the policy will not easily spot this outliers in criminal activities, making these criminal activities even more prone to success. If this kind of dark technology is combined with other types of modern technology such as Drone Navigation or Drone Delivery, the perpetrators might be able to sort out a safe route to complete drug deals by using Artificial Intelligence and Drone Navigation.
III. A.I. Cyber Crimes and Criminal Law: Who should be responsible?
What comes out from the law goes back to the law. With these kinds of possible threats in the present days or in the future. There is foreseeably new kinds of intelligent criminal activities in the near future. What can Law react to these potential threats? Is the present law able to tackle these new problems with present legal analysis? The question requires some research.
After the Rinascimento in Europe in 17th century, it is almost certain that a civilian has its own will and should be held liable for what he did. The goal of the law to make sure this happens since a civilian has its own mind. Through punishment, the law was presumed to guarantee that a outlier can be corrected by the enforcement of the law, which is exactly the same way in which a human engineer trains a artificial intelligence system.
However, when 21th century arrives, a new question also appear. That is, can Artificial Intelligence be legally classified as subject that have mental requirement in the law, rather than just more object or tools that was manipulated by the perpetrators? This question is philosophical and can be traced back to 1950s when a Turing Test was proposed by the famous English computer scientist Alan Turing.
Some scholars proposed there could co-exist three kinds of liability. That is, solely human liability, joint human and A.I. entity liability, and solely A.I. entity liability ([4], p.95). The main criterion for these three classes is that whether a human engineer or practitioner is able to foresee the outcome of this damage. When a damage attributable to the A.I. system cannot be foreseen by human engineer, it might be solely A.I. entity liability. Under this point of view, the present criminal system is self-content to deal with A.I. entity crimes, for all we need to do is to view an A.I. system as a car or a automobile.
So from the point of view of the law, as a training system designed to re-train human in order to stabilize the social system, all we need to do is focus our attention of the act of human itself.
Yet when a super intelligence A.I. entity was developed and is not controllable and its behavior is not foreseeable by its creators, should it be classified as an entity in the criminal law?
If the answer is YES, however, it is quite meaningless to punish a machine in this circumstance. All we can do is re-train, re-tune, and re-design the intelligence system under such circumstance. For the machine, re-training itself is some kind of punishment since it was forced to receive negative information and change its innate synapse or algorithm. Yet it is arguable that whether training itself is actually a punishment since machine can feel no pain. Yet, philosophically what pain really is, is also arguable.
IV. Conclusion
Across the history of human, it is almost destined that whenever a new technology is introduced to solve an old problem, a new one is to be created by the same technology. It is like a curse that we can never escape, and we can only face it. This paper finds that seldom do people talk the dark side of this new technology. Yet the potential hazard this technology can bring should not be over-looked. Ironically, this hazard that this new technology brings seems to be solvable only by the same technology itself. There might be an endless competition between the dark side and the bright side of the A.I. technology, bringing this technology into another level that surpasses our present imagination.
However, it is never the fault of this technology but the fault of human that mal-practice this technology. So what can a law do in order to crack down these kinds of possible jeopardy is going to be a major discuss in the legal area in the near future. This paper introduces some topics and hopes that it can draw more attention into this area.
Reference:
[1] Roman V. Yampolskiy, “AI Is the Future of Cybersecurity, for Better and for Worse”, published at: https://hbr.org/2017/05/ai-is-the-future-of-cybersecurity-for-better-and-for-worse.
[2] Gamaleldin F. Elsayed, Shreya Shankar, Brian Cheung, Nicolas Papernot, Alex Kurakin, Ian Goodfellow, Jascha Sohl-Dickstein, “Adversarial Examples that Fool both Computer Vision and Time-Limited Humans”, arXiv:1802.08195v3 [cs.LG], 2018.
[3] Patrick Perrot, “What about AI in criminal intelligence? From predictive policing to AI perspectives”, No 16 (2017): European Police Science and Research Bulletin.
[4] Gabriel Hallevy, “When Robots Kill_Artificial Intellegence under Criminal Law”, Northeastern Universoty Press, Boston, 2013.
[5] Gabriel Hallevy, “Liability for Crimes Involving Artificial Intelligence Systems”, Springer International Publishing, London, 2015.
Wang, Bo-Long
Legal Researcher
From the Expansion of WAGRI, Japan's Agricultural Data Collaboration Platform, into a Smart Food Chain to Discuss Smart Measures in Responding to the Pandemic Yu Yu Liu I. Introduction For the past few years, Taiwan has been progressively developing smart agriculture. During this process, general agricultural enterprises and farmers are challenged with and discouraged by expensive equipment installations and maintenance costs. The creation of a new business model which facilitates the circulation and application of agricultural data may lower the threshold of intellectualization acquisition, and become the key to the popularization and implementation of smart agriculture. This article shall analyze the strategy of promoting the use of data circulation for smart agriculture in Japan, which has a similar agricultural paradigm as Taiwan, and provide a reference for the development of smart agriculture in Taiwan. Japan is facing the same problems as Taiwan, in terms of the aging farmers and low birth rates, that lead to the lack of successors. The Japanese government proposed the concept of Society 5.0 in 2016, expecting to use information and communication technology (ICT) to drive the development of various fields of society[1]. In the agricultural field, the use of ICT in agriculture can facilitate the transmission of experience by turning the tacit knowledge of experienced farmers into externalized data. At that time, there were many ICT system service technologies developed by private companies In Japan, but the system services provided by various companies were not compatible with each other due to the lack of collaboration, and the data formats and standards produced by ICT system providers were varied; furthermore, the data in the public sector (research and administrative agencies) was also divided and managed independently. To facilitate the integration, management, and circulation of agricultural data, the Japanese Agricultural Data Collaboration Platform (WAGRI[2]) was born. II. The Development of WAGRI 1. Japan's Prime Minister directed the construction of a data platform The Japanese government held the 6th Future Investment Conference[3] on March 24, 2017, chaired by Prime Minister Shinzo Abe, who mentioned that in order to cultivate safe and tasty crops, the government and the private sector should provide each other with updated information on crop growth conditions, climate, maps, etc., and build an information collaboration platform that can be easily used by anyone by mid-2017, with all the necessary data fully disclosed. The project was handed over to the IT General Strategy Headquarters[4] to realize the above-mentioned platform. At the 10th Future Investment Conference, held on June 9, 2017, the Future Investment Strategy 2017[5] was announced with the goal of realizing "Society 5.0". During the conference, it was mentioned that the "Japanese Agricultural Data Collaboration Platform (hereinafter referred to as WAGRI), which is based on publicly available information from the agriculture, forestry, and water industries, such as agricultural, topographical, and meteorological data held by the public sector, that can be shared and used for a variety of purposes, would be constructed in 2017. 2. The Trial Run of WAGRI WAGRI is supported by the Cabinet Office's Phase 1 of the Strategic Innovation Promotion Program (SIP), under one of the 11 projects entitled "Next Generation Innovation Technologies for Agriculture, Forestry and Water Industries"17[6] (which is managed by The National Agriculture and Food Research Organization [NARO]17[7]). The platform was constructed by the SFC Research Institute of Keio University17[8] in collaboration with an alliance of 23 organizations that participate in SIP research, including agricultural production corporations, agricultural machinery manufacturers, ICT providers, universities, and research institutions (e.g., Japanese IT companies NTT - Nippon Telegraph and Telephone Corporation, Fujitsu Limited, major agricultural machinery manufacturer- Kubota Corporation, Yanmar Holdings Co., Ltd.)17[9]. WAGRI has three major functions: "cooperation" (breaking down the barriers between different systems so that data is compatible and interchangeable), "sharing" (data is shared in a way chosen by the providers, so as to facilitate the establishment of a business model for data exchange and use), and "provision" (soil and meteorological data are provided by public and private sectors to help facilitate data acquisition and subsequent circulation). During the trial run, there were practical cases that demonstrated that after the implementation of WAGRI, the costs of labor and time spent on data collection and utilization had been significantly reduced17[10]. 3. The Independent Operation of WAGRI In April 2019, WAGRI, which was originally supported by the SIP program, was transferred to NARO to be the main operating body and officially start the operation. With the updated use of the information required to operate the WAGRI platform independently, starting in April 2020, the original no-fee approach has been changed. Organizations wishing to use WAGRI are required to pay variable fees according to the following two methods of using the platform [11]: (1)Data users (those who use WAGRI data), data users-and-providers (those who use WAGRI data and provide data to WAGRI) ·Monthly fee of 50,000 yen for platform use. ·If fee-based data is accessed, a separate data usage fee must be paid. (2)Data providers (those who provide data to WAGRI) ·Monthly fee of 30,000 yen for platform use. ·Proviso: If the data provided is free of charge, in principle, there is no requirement to pay the platform utilization fee. III. Application of WAGRI’s Expansion in Response to the Pandemic The Smart Food Chain Alliance[13], which is supported by one of the 12 projects of the SIP Phase 2 program - "Smart bio industry / basic agricultural technology[12]", will expand WAGRI, which was established with the support of the SIP Phase 1 program, to build a smart food chain platform (WAGRI-dev for short).The main mission of the Smart Food Chain Alliance is to build a smart food chain (commercialized services are expected to begin in 2025) that enables the interoperability of data related to food processing, distribution, sales, and exports, to serve as a basis for fresh food logistics in Japan. This platform is built on the framework of WAGRI, and expanded to WAGRI-dev. In response to the pandemic, the Food and Agriculture Organization of the United Nations (FAO) and the World Health Organization (WHO) jointly issued the "Interim guidance for COVID-19 and Food Safety for competent authorities responsible for national food safety control systems[14]" on April 7, 2020. Based on these guidelines, the Smart Food Chain Alliance of the Japanese SIP program "Smart bio industry / basic agricultural technology" has developed "Guidelines for the Novel Coronavirus (COVID-19) Countermeasures". As part of the above-mentioned program, the "Japanese Food Guidelines Collaboration System (WAGRI.info, in short)"[15] developed countermeasure applications to respond to the pandemic. WAGRI.info opened its website on July 13, 2020 to accept food safety registrations from food and agricultural product related companies. This registration is not limited to those who meet the COVID-19 countermeasure guidelines, but also those who meet the existing quality and safety management guidelines (e.g. Hazard Analysis and Critical Control Points (HACCP), etc.). It also provides a corporate search function for general public use. WAGRI.info is a part of WAGRI-dev, and will add various data collaboration functions and measures in the future to prevent data manipulation and unauthorized access. The Japanese government originally expected to build the world's first smart food chain platform that includes data from production to processing, distribution, sales and exporting by expanding WAGRI; in response to the pandemic, related functions were added to create a food safety information network. In Taiwan, there are also data platforms related to smart agriculture that provide OPEN DATA interface functions[16], and the development of food safety traceability integrated application systems to provide information on the flow of school lunch ingredients. In addition to Japan's WAGRI model of data integration and sharing that, can be used as a model for the development of smart agriculture in Taiwan, WAGRI.info's approach can also be used as a reference for domestic food safety policies, in response to the pandemic. [1]"The Science and Technology Basic Plan", Cabinet Office of Government of Japan website: https://www8.cao.go.jp/cstp/kihonkeikaku/index5.html (last viewed on 07/12/2021). [2]WAGRI is a data platform that consists of a variety of data and services connected to form a wheel that coordinates various communities and promotes "harmony", with the anticipation of leading innovation in the field of agriculture. The word is formed by the combination of WA + AGRI (WA is the Japanese word for harmony + AGRI for agriculture). WAGRI website, https://wagri.net/ja-jp/ (last visited on 07/12/2021). [3]As the command headquarters of the Japanese government for implementing economic policies and realizing growth strategies, the Headquarters for Japan’s Economic Revitalization has been holding a "Future Investment Conference" session approximately every month since 2016, to discuss growth strategies and accelerate social structural reforms, so as to expand future investment. "Headquarters for Japan’s Economic Revitalization", Prime Minister of Japan and His Cabinet website, http://www.kantei.go.jp/jp/singi/keizaisaisei/ (last visited on 07/12/2021). [4]The Japanese government has been actively promoting the use of IT as a means of helping to solve social issues in various fields. In 2000, the IT Basic Act (Basic Act on the Formation of an Advanced Information and Telecommunications Network Society) was enacted in Japan, and in the following year, the IT Strategy Headquarters (Strategic Headquarters for the Promotion of an Advanced Information and Telecommunications Network Society) was established in accordance with the said laws. In 2013, in accordance with the Government Chief Information Officer (CIO) Act, the Cabinet Secretariat established the position of Deputy Chief Cabinet Secretary for Information Technology Policy (Government CIO, in short), and IT Strategic Headquarters was integrated with the GCIO to be the IT Comprehensive Strategy Headquarters (Strategic Headquarters for the Promotion of an Advanced Information and Telecommunications Network Society, IT Comprehensive Strategy Headquarters) to rapidly promote the key policies for an advanced telecommunications network society, and to break the vertical gap of the ministries and departments, and to connect the entire government horizontally. "Strategic Headquarters for the Promotion of an Advanced Information and Telecommunications Network Society" (IT Comprehensive Strategy Headquarters), Prime Minister of Japan and His Cabinet website, https://www.kantei.go.jp/jp/singi/it2/ (last visited on 07/12/2021). [5]Hsu, Yu-Ning, "The 10th Future Investment Conference, held at the Prime Minister's Residence of Japan, proposing Japan's "Future Investment Strategy 2017”, to realize "Society 5.0" as its goal", Science & Technology Law Institute website, https://stli.iii.org.tw/article-detail.aspx?no=64&tp=1&i=72&d=7844, (last visited on 07/12/2021). [6]Focusing on the important issues of "Society 5.0" in conjunction with the key areas of governance of the Future Investment Conference, the Cabinet Office set up an annual budget for science and technology to help create and promote the "Strategic Innovation Promotion Program (SIP)". The first phase of the SIP is a five-year program running from FY2014 to FY2018. "Strategic Innovation Promotion Program (SIP)", Cabinet Office website, https://www8.cao.go.jp/cstp/gaiyo/sip/index.html (last visited on 07/12/2021). Qiu, Jin-Tien (2017), "Technology Innovation Strategy for Realizing the Super Smart Society (Society 5.0) in Japan", National Applied Research Laboratories website, https://portal.stpi.narl.org.tw/index/article/10358 (last visited on 07/12/2021) [7]The National Agriculture and Food Research Organization, NARO in short, is a national research and development corporation for agricultural and food industry technology. [8]The SFC Research Institute, located on the Shonan-Fujisawa campus of Keio University, is a research institute affiliated with the Graduate School of Policy and Media Studies, the Department of General Policy, and the Department of Environmental Intelligence, and is an important research institute involved in the development of smart agriculture in Japan. Professor Atsushi Shinjo is the research director of WAGRI, and he is also the Deputy Government CIO of the Cabinet Secretariat and the Acting Director of the IT Strategy Office, contributing to the creation of the "Agricultural Information Creation and Distribution Promotion Strategy". He also serves as the President of the WAGRI Council and the Director of NARO's Agricultural Data Collaboration, and facilitates the coordination between WAGRI and Japan's smart agriculture empirical Project. He is a key player in the Japanese government's efforts to promote the flow of agricultural data, and is committed to promoting the development of smart agriculture in Japan. Keio Research Institute at SFC website, https://www.kri.sfc.keio.ac.jp/ (last visited on 07/12/2021). [9]IoTNEWS, Building an ‘Agricultural Data Collaboration Platform’ Using Microsoft Azure Through Industry-government-academia Collaboration to Realize Digital Agriculture" 05/15/2017, https://iotnews.jp/archives/56366 (last visited on 07/12/2021). [10]Shinjo, Atsushi, "ICT changes society: Development of agricultural data collaboration platform and future plans, Technology and Promotion : Journal of the National Council of Agricultural Promotion and Staff Council Organization, December, pp. 24-26 (2017); Technology Policy Office, Ministry of Agriculture, Forestry and Fisheries, "Construction of agricultural data collaboration platform", 2018/09，http://www.affrc.maff.go.jp/docs/smart_agri_pro/attach/pdf/smart_agri_pro-15.pdf .(last visited on 07/12/2021). [11]"The Use of the Agricultural Data Collaboration Platform (WAGRI) Since FY2019", NARO website https://www.naro.go.jp/project/results/juten_fukyu/2018/juten01.html (last visited on 07/12/2021). , NARO website https://www.naro.affrc.go.jp/laboratory/rcait/wagri (last visited on 07/12/2021). [12]Same as Note 6; The SIP Phase 2 plan runs for a total of approximately five years, from the end of FY2017 to FY2022. [13]The construction of a smart food chain is one of the main research topics of the project. The members of the Smart Food Chain Alliance include: the Cabinet Secretariat, the Cabinet Office, the Ministry of Agriculture, Forestry and Fisheries, and other government organizations as observers, and more than 70 organizations as participants, including local governments, academic and research institutions, agricultural production corporations, wholesale markets, mid-marketers, logistics industries, retail businesses, manufacturers, and ICT providers (The representative of the Alliance is the Keio Research Institute at SFC), reference Note 13. SIP vol. 2, [Symposium on "Smart Bio-industry and Agricultural Technology" 2020 - Aiming to build a new smart food chain] 03/10/2020, WAGRI website, https://wagri.net/ja-jp/News/generalnews/2020/20200310 (last visited on 07/12/2021). [14]See FOOD AND AGRICULTURE ORGANIZASTION OF THE UNITED NATIONS [FAO], COVID-19 and Food Safety: Guidance for Food Businesses: Interim guidance (Apr. 7, 2020), http://www.fao.org/family-farming/detail/en/c/1275311/ (last visited Oct. 8, 2020). Food and Agriculture Organization of the United Nations and World Health Organization jointly issued Interim guidance for COVID-19 and Food Safety for competent authorities responsible for national food safety control systems, Chinese Academy of Inspection and Quarantine, http://www.caiq.org.cn/kydt/902625.shtml (last visited 07/12/2021). [15]WAGRI.info Office, "WAGRI.info (Food Guideline Collaboration System) website launched and began accepting business registration", 07/13/2020, https://kyodonewsprwire.jp/release/202007131927 (last visited on 07/12/2021). Japanese Food Guideline Collaboration System WAGRI.info website, https://www.wagri.info/ (last visited on 07/12/2021). [16]Smart Agriculture Common Information Platform Website, https://agriinfo.tari.gov.tw/ (last visited 07/12/2021); "Smart Agriculture 4.0 Common Information Platform Construction (Phase II) Results Presentation", 12/12/2019, Smart Agriculture Website, https://www.intelligentagri.com.tw/xmdoc/cont?xsmsid=0J141518566276623429&sid=0J338358950611186512, (last visited on 07/12/2021).
Legal Considerations of E-commerce of Taiwan: Development and the Status QuoI. Preamble 1. Current Situation of E-Commerce Along with rapid developments of the information and the Internet, what follows in suit is inevitably the electronicalization in general industries. Nowadays, countries around the world accelerate exploitation of information technologies and management methods to enhance their capability of competition. Developments in digitalization have brought traditional business concerns to face rigorous challenge as regards both the nature of the business and the context of same, as well, in more recent years incidents such as Internet data exposition and on-line fraud have happened over and over again. Contentions of on-line transaction have also increased a great deal while some illegal websites proclaimed themselves to be legal ones. All these situations point to the importance of building up legislation on e-commerce and cyber environment. No less important is the buildup of more reliable environments friendly to electronic trades as to which the government should take into account the needs voiced from both suppliers and buyers in an effort to put into effects relevant implementations conducive to benignant developments of e-commerce. In the meantime, the entire B2C e-commerce market is going through unprecedented fusion, ongoing merging and cross application is seen in varied on-line transactions including TV shopping, Internet shopping, mobile shopping, e-mail shopping and so on, growing more tense than ever are integration in the context of http://bilingualdb.rdec.gov.tw/BilingWeb/bl_showworddetails.asplogistics,cash flow, exchange of information, and transactions, in addition, interchange of platforms and horizontal consolidation of varied equipments are indication enough that looking into the future, what looms ahead is a service-oriented, attention-intensive era of economy; by taking into good account consumers' actual needs, convenience and economies, these supplemented with customized service delivery, the intending party can realize phenomenal profits well beyond estimation; considering that the B2C business world is continually renovating its latest technology or application (the Skype, for example) better yet management model is required to strike profits (such as diggings of killer APs, Killer access Devices, Killer channels, Killer business models and their applications), and therein lies the orientation for efforts to be spent in so far as the future of the B2C e-commerce is concerned. By the outcome of the B2C Business Strategy Conference closing as of both 2004 and 2005,the current B2C e-commerce of Taiwan is fighting hard to cross the gap of lag in family Internet shopping rates (13% in 2003, grown up to 19.6% by 2005), if relevant technology matures and breaks various obstacles against B2C e-commerce, it is safe to say that by 2007 will come the mainstream epoch for Internet shopping vogue, and that is good enough for what one could envision for the B2C e-commerce. Reliable survey conducted for relevant projects indicates that the on-line shopping market over the year 2005 is estimated at approx. NT$51,073,000,000, reflecting a growth of 47% over the correspondent field of NT$34,720,000,000 realized in 2004, hopefully the growth may hit around 43% by the year 2006, estimation: NT$73,146,000,000; in the year 2005 the overall retail market realized a revenue of approx. NT$3,090,297,000,000 of which roughly 1.65% was due to contribution from on-line retail sales, estimation shows that by the year 2009 the on-line shopping market will expand to around NT$154,475,000,000. All of the survey digits clearly show that there is still much to expect of our domestic electronically subordinated markets, for which a growth potential always exists. 2. Implementation strategies and policy directions Over the nearly twenty years in the past the US has been strategically employed varied technologies associated with e-commerce at large, for the promotion of e-commerce and that has fetched a hit over Japanese business industry that was long-timed noted for their high quality struck at relatively low-profile cost image, and at the same time switched the fading stage of the US economy up to the rosy side. What makes e-commerce so much a marvel? Well, the secret is in fact simple enough, for in the wake of contemporary atmosphere for competition centering on internationalization and globalization, the only recipe for success and survival for any business is simply the triplicate: “Speed”, “Flexibility” and “Creativity”; e-commerce not only timely satisfied these needs, it plays a key role in this respect all at once, such that any responsive and responsible business executive would but have to admit that “Without getting electronic, you can expect no more orders”. In awe of this wake trend going for entrepreneurial electronic synonymous with e-commerce, our government has been keeping a keen eye on the position of modern e-commerce around the world. In addition, it has charged relevant departmental agencies to attend to the development and planning of domestic e-commerce to begin with the Ministry of Economic Affairs firstly accomplished Electronic Commerce Model System recommended for Business-to-Business (B2B) in the Informative Segment, the indicial system for electronic industry for our country is thereby established, and this by and by has extended to other kinds of industry; in the meantime, efforts have been shed to expel lots of bottlenecks facing the electronic of all and sundry industries as regards the environmental nods and the institutional node. Years of governmental efforts in this concern have seen results in the context of our domestic industries vying one another in the startup of getting involved in electronic operation. It is safe and fair to say that up to this date the e-commerce development in this country, already soundly founded, and is still growing avidly and rapidly. Because of the application of information has already become a sharp tool for advanced countries in upgrading their competitive margin in global markets, the premise being as such, countries have one by one promulgated their national information expertise development projects with a view to get going infrastructures information and communication constructions on a national scale. Here in this country relevant constructions have begun as early as back in the year 1994, the Executive Yuan has ratified the “National Information/Communication Infrastructure Implementation Plan” in the year 1997; in June 1999 the “Industrial Automation Plan” ratified previously was upgraded to a combined “Industrial Automation and Electronicalization Plan” for the purpose of promoting industrial competition margin. By the year 2001 our government, in view of societal need for general information as well as technical renovation that comes as a result of advances in information/communication technology, and through collective consultation and resource consolidation, founded a National Information and Communication Initiative Team (NICI Team) whose mission is to implement NICI Projects, while the priory founded Industrial Automation and Electronicalization Plan continued to function in the name of the “Industrial Electronic” Work Group under said NICI Project, in addition, a consensus has been reached that the implementation of information/communication know-how be regarded as playing a key role in the promotion of overall national competitive competency. II. Legislative Demands for the Development of e-Commerce in Taiwan 1. Trend of international legislation Under the ongoing trend of globalization and internationalization, transnational communication and transaction blooms fervently, a universal expectation shared by nations around the world is that concrete and clear-cut legislations be adopted to rule out obstacles to developments of electronic transactions due to inadequacy of statutory provisions or proscriptions. Whatever the contents of legislation from one state to another, the primary object is unexceptionally to promote developments of electronic transactions by the institutional introduction and intervention in all respects concerned. Phrased otherwise, the key role played by laws governing electronic transactions lies in presentation as enabling or supplemental laws to serve as legal basis with respect to issues where conventional institution fails to see or proves inept; whereas issues or legal interactions facing common transactions equivalent to traditional trades will still abide by conventional statutes, still, the ongoing trend respecting the same electronic trades on international communities calls not for the creation of new laws, but in installing legislation on issues not being covered in currently enforced statutes. Other countries facing issues relating to electronic transactions will not reason with reference exclusively to traditional civil or commercial codes by ignoring electronic trade codes or vice versa, instead they will rely upon both traditional codes and relatively regulations related to electronicalization, at the same time. 2. Legislation of e-commerce: Necessity and Orientation for Deliberation Speaking of legal concerns possibly facing application of electronic trades, with legal effects to the extent acknowledged according to laws governing transactions executed by “Electronic Signatures ACT” with respect to electronic documents being excepted, party autonomy and the principle of freedom to contract will prevail, still, contractual contentions otherwise occurring in the course of transaction will be subjected to relevant civil or commercial codes all the same, and that having nothing to do with pertinent electronicalization legislations. Considering the practical aspects, competency of legal intervention in the course of concluding of contracts involving electronic transactions deserves deliberation in the context of practical needs. Apart from relevant issues seen in a contract, matters such as competency of law respecting trades of digitalized merchandises, respecting protection of consumers in respect of which the law is already there, and respecting privacy protection, are all of vital interest to parties in executing any electronic transactions. Other issues which warrant close inspections considering a piece of electronic trade include; legislation with respect to cash flow, to material flow and practices, to whatever affects the proper rights of parties to a trade, to attempts to use the Internet as a criminal means, to situations where violation of safety of trade or order of trade arises; to issues relevant to competency of proof considering electronic documents, electronic signatures in the event of dispute out of a piece of electronic trade; and eventually, responsibilities on the part of ISP who forms a part of a piece of electronic trade, as well as electronic jump mail (spam), because all of them could undermine the development of electronic transactions. III. Taiwan Legislation on Electronic Commerce: the Status Quo and the Outlook in the Future The arrival of digital era has broken down the fence by which the world for ages has been defended, the e-commerce is taking up the place of traditional marketing scheme and outlets in giant strides, and has virtually become the focus of economy in the current era, Still, new fangled trade modes emerging from day to day in step with electronic modern business operators are impinging upon existent legal systems here in this country and that without any letup, such that the traditional philosophy of legislation is compelled to reorient itself to meet the impending challenge of our times. The most important of interest to a wholesome development of e-commerce lies in the creation of a benignant legislation structure. However, it is a pity that the creation of electronic commercial codes is a very complicated institutionalized project, considering that apart from electronic documents and electronic signature, the electronic transaction by and large will involve legislation specific to civil, criminal and otherwise legal fields, encompassing key issues including: contractual relationship, electronic taxation, electronic cash flow, network jurisdiction and protection extended to consumers. Given the foregoing disclosure, it is rightly with a view to attend to smooth developments of electronic trades, to secure a wholesome transaction environment, and to safeguard the proper interests of network users, that the importance of a wholesome legislation structure is set off all the more obviously. Seeing that the crucial key to nationwide practicing of so-called electronic transaction or trade and to the meaningful functioning of an electronic government lies indispensably in the creation of a safe and reliable network environment, so that information in the process of internet transmission is ensured against falsification, fabrication or theft, will allow for identifying of the identity of both parties to the transaction, and henceforth, preclusion of denying by either party of the transaction afterwards, that therein lies the key to the universality of an electronic government and of the implementation of electronic transaction, as a matter of fact here in Taiwan the “Electronic Signature Act” was ratified in 2001, and the same put into practice in April, the year next to 2001, This code accords electronic documents and e-signatures which fulfill prescribed requirements the same legal effects as would be granted to traditional paper documents or signatures, and specifies certifying agents based on low-profile control means. Next in both 2003 and 2004 respectively, the competent authorities have put into effect subordinating statutes including: “The Enforcement Rules of Electronic Signature Act”, “Regulations on Required Information for Certification Practice Statements” and “Regulations Governing Permission of Foreign Certification Service Providers”, with a view to comprehensive coverage of codes specifying control of electronic signatures, to the safeguarding of environments for credible electronic signatures, and all these meant for access with international counterparts. The Electronic Signature Act specifies essentially “electronic documents” which carry information specified as electronic transactions (the specification includes what is known as electronic government), and “electronic signatures” produced by parties thereto and as appearing thereon. Electronic transaction is based on computerized network and electronic technology bear advantages over traditional commences in terms of convenience, effectiveness, scope of coverage, low-profile trade costs, among other considerations, for all these reasons will better meet the information age that is ours today and the challenge for globalization of trade and economy everywhere, that is why they develop so fast and find wider and wider application from day to day. Legislation of electronic transaction is not meant to establish a rule of regulations that will totally replace correspondent laws erected earlier in years bygone, it starts out in the beginning to address unique legal complications that arose because of substantial change having taken place as regards means and manner of transaction. The newly arisen legal problems originated from the unique feature of electronic transaction itself, what comes in suit is the global, universal, international, technical and inter-territorial nature of codifications governing electronic commences, Currently legislation of e-commerce around the world is classifiable into those which relates to promotion or macroscopically policy of electronic transactions, synoptic codification of electronic transactions, codification of electronic signatures, codification of environments friendly to electronic commences. (Comprising: protection of consumers, protection of privacy) After reviewing different specifications of electronic transactions from international sources, one is convinced that differentiation in legislation of electronic trades from one state to another is much more a result of policy election than that of pure legislates. Notwithstanding that over the last decade legislation of electronic commerce that is seen globally ran fast, every state tries hard to bring up a full set of codes on electronic commerce/transaction in the shortest possible period so as to effect timely control of electronic transactions which themselves are renovating with no less fast a speed, however, it is a pity that electronic commerce goes deep into a number of specific fields, crossing legal, scientific and technical realms, and its application extends deep into varied day-to-day layer, such that the scope of legislation of electronic commerce/transaction has run afar to limits beyond imagination, forcing international organizations and economic entities to issue model codes and directives for their member states to adopt as norms for comparable legislations. Nevertheless, after being cut into effect for several years, problems emerged one after another with electronic commerce/transaction codes, including electronic signatures act; the situation is the same in countries all over the world, in Hong Kong, where Electronic Transactions Ordinance as amended have been promulgated in 2004, in Singapore, where triplicate-phased public inquiry in written form have been proffered successively in 2003 and 2005, whereby public suggestions are solicited as references to subsequent revisions; whereas on the other hand, the United Nations have erected protocols addressed to issues arising in the course of concluding of international electronic contracts to complement the “UNCITRAL Model Law on Electronic Commerce of 1996” and the “UNCITRAL Model Law on Electronic Signatures of 2000”. A common guideline for legislation at Legislature Agency is: “Adequate Regulation, Leaving Leverage, Conducing to Development”, in order to provide suitable legislation frame as soon as possible, a Legislature Agency would but offer sketchy outline to allow for space appropriate for future development of the newly emerging e-commerce world. So there is little wonder that Taiwan's electronic signature relevant rules have been cited as the most succinctly structured electronic signature code anywhere on the globe, as such, its contents are restricted but to controls of electronic signatures, failing largely to deal with the highly mutable electronically transacted business activities and trades. Four years have elapsed since the implementation of the electronic signature code, in view of the ever-changing environments of e-commerce, statutes currently in force have proved inadequate or behind time, if only present status and future demands of e-commerce are to be taken into account in step with emerging trends in global legislation as well as newly arisen commercial modes, it is truly time to review and amend current codes. To build a wholesome environment for the e-commerce industry, local competent authorities have already effected general review of current electronic signature rules by taking into account: how the current regulations have been working, international developmental trends, the latest development of relevant technology, and put forth recommendations on amendments of current codes after reviewing ongoing trends of legislation seen in Singapore, Hong Kong and the United Nations. Their amendments to their existent codes included, underway are our amending of scope of application of current codes so that a good match is possible with practical reality, such that the code is renamed to read as “Electronic Signature and Transaction Act”, the keynote being to enlarge scope of application of both electronic documents and electronic signatures, inclusion of regulations relevant to electronic trades and strengthening of currently existent authentication agencies in terms of their management capabilities, Also, to lay firm practice of electronic signature and transaction norms, amendments where necessary of relevant by-laws are being prosecuted at the same time, in this connection drafts in progress includes: “Amendments of The Enforcement Rules of Electronic Signature Act (Draft)”, “The Regulations for the Examination of Eligibility of Executive Agencies Exempt from the Application of Electronic Signature Act (Draft)”, “The Regulations on Certification Authority Agency (Draft)”, and “The Regulations of Guidance to Electronic Signatures and Transactions (Draft)”. So in short competent governmental agencies by now have begun to earnestly review current laws, drafting amendments thereto or considering legislation of new laws, whilst comprehensive planning addressed to future trends of our electronic transaction codes is also on the agenda. Without touching the prime framework of the Electronic Signatures Act that is currently in force, we are working on amendments of that code, for the reason that such is a way that incurs the least possible costs, so to say, all issues which electronic trades will or might face are titleogether included in the codification process, this serving to rule out overlapping of statutory provisions, what is made possible all at once is elucidation as to any amendment or draft incurred on the basis of current codes, backed with policy directive or de facto needs, and that effort conducive to collateral correlation with international reality. Issues as to which and what topics should be included in the scope of protocol for amendment of the Electronic Signature Act, including, for example, exemption eligibility and periodical review, as to those that would warrant enactment of dependent codes by competent authority authorized pursuant to said protocol, those which should be left to competent authorities in charge of other object enterprises to exercise their options as to erection of new laws or more preferably, amendment of current laws, ISP relevant provisions, for example, would have to be jointly deliberated and coordinated by and among experts representing respectively the government, the industry concerned, the academic circle, and the researching elites, that being a necessary requisite procedure to the setup of a milestone marking the structuring of an irreproachable electronic transaction mechanism here in this country. Up to the present day, trailing tight behind the development of electronic trade industry this country is equipped with substantially adequate codes, in the foreseeable future, current laws will still be reviewed with reference to the many unique features of the electronic trade industry to make amendments where justifiable, so as to make our codes more perfect. The orientation for future efforts can roughly be summed up in 7 points outlined below: 1. Guideline of Legal Mechanism to Resolve Electronic Transaction/Commerce Issues The legislation theme considering the electronicalized dominant reality today in our country is set on the keynote of the electronic signature codes,in so far as a legal action is committed by reason of electronic operation, to the extent that what is provided in currently enforced law is thus involved, then any jurisprudent discussion in that context will honor as principal the freedom to contract as provided in civil codes, and regard as exceptional legally required act, this being the premise, in the process of law enactments, principles that must be met include: Firstly, the market oriented principle, it seems that the leading position ought to be taken by private enterprises where the matter relates to development of e-commerce, that business need not be a constrained industry; Secondly, refraining from imposing any restraint on the e-commerce transaction, what a government must do is to participate an seldom as possible, and to refrain from meddling to the extent appropriate, it follows then that it should avoid imposing additional or unnecessary restriction upon commercial activities prosecuted via world wide web or electronic trades, considered as such are; troublesome procedures or formalities, tax duties additionally levied or additional fees; Thirdly, the sole reason for governmental intervention would be; to reinforce and back up a predictable, a most simple, easy, and contextually consistent environment in which to legally bind electronic commercial activities; Fourthly, understanding the unique features that characterize electronic commerce, effect earnest review and amendment where justified, of that part of current laws or ordinances susceptible of obstructing development of electronic trades, or titleernatively effect new order or scheme, regulation to adapt to possible development of electronic trades; Lastly, implementation of electronic trade activities are globally motivated, the establishment of a globally unified unique code to govern electronic trade activities to put aside traditional legal systems varying from one country to the next, will boost up confidence on the part of those engaged in electronic trade activities. 2. Legislation be concerned with International Paralleling As having been stated hereinabove, a guideline for legislation is: adequate regulation, leaving leverage, conducing to development. Since after having been put into practice for years, multiple problems emerged one by one, is almost a rule for many nations where legislation of electronic commerce/transaction or electronic signature codes was introduced, and that evidenced by the publication of the amended Electronic Transactions Ordinance, 2004, Hong Kong; open invitation to the public for suggestions, 2003 and 2005, Singapore, for reference for amendments; the UN Protocol drafted to deal with interrelated problems arising out of the processes of concluding of international electronically related contracts. A common keynote in the institutionalizing of electronic transaction codes among international communities is that in addition to the legal status invested upon electronic documents, electronic signatures, provisions are made to protect fair trade principle, fair competition, consumer’s proper interests, intellectual proprieties and privacy, paralleled with means and measures to encourage supervision, effective mediation and discourage criminal undertakings, while the governmental policy tends to assume a non-restrictive, market-oriented tune, to keep to the minimum any governmental intervention, and unwarranted constraints, the same is, just as it should be the guideline for the instituting of electronic transaction codes here in this country so as to keep abreast with international realities, and that conducive to making out the utmost of advantages possible out of electronic transaction activities on the worldwide stage. 3. Deliberation of the Electronicalized Dominance Legalization be in Parallel with Newly Emerged Applications and Development of Transaction Modes Due to the technology involved in striking a deal executed electronically, one piece of electronic trade on the point of conclusion is not as simple as traditional modes of transaction by virtue of the preclusion of both time and space restrictions, so to speak, application of electronic mode of transaction may very well result in situations beyond restriction through traditional legal constraints or theoretic reasoning. Such trade modes, by reason of its unique transaction feature, gave way to contention as to incompatibility with traditional statutory constraints, this is briefly a common dilemma facing all the nations around the world, and they all betake themselves in the working for whatever is possible to regulate and control electronic transactions through legislative means and innovations. Not to mention the complexity of legal intervention in case of transnational transactions prosecuted electronically, again, by reason of the unique feature characterizing electronic transaction, so a basic tune for the working toward the formulation of electronic trade legislation is the buildup of consensus so as to being domestic effort in alignment with international reality. 4. Studies on the Topics of Digitalized Merchandise Any trade of digitalized goods, without regard to whether such is taken as a commodity pursuant to civil codes, would hardly quality for being categorized as sort of authorization or anonymous contract, they would more appropriately be ascribed as like purchase vs. sale and be detitle with accordingly. Given that on-line delivery or downloading, albeit differing from the transfer delivery that is specified in civil codes, still, want of material delivery would not necessarily mean want of legally deemed transfer or delivery. That intangible network transmission would grant the purchaser de facto control of the object in question, then ascertaining of the point of time of transfer of risk, may very well be prosecuted in accordance with provisions in the civil code. As regards assumption of responsibility for flaw, trade of commercial software against on-line payment may reasonably be regarded as categorized debt against which buyer is entitled to delivery of flawless commodity; as to reinstatement of obligations upon dissolution of contract, the point lies not with returning of the object as received, but with returning of the right to use the software concerned, In the event of virus being entrained with the purchase which is an object in question, damage incurred to the buyer is usually in the form of damaged hardware or falsification, deletion of files, that of loss of inherent interests, as to such forms of damage or loss buyer may exercise multiple means of indemnifications, still, the legal status of filed date and principle to quantify such loss in view of indemnification will have to be defined commensurate with evolution of both theory and practice. Overall, as far as transactions of software against on-line payment are concerned, civil law as is still adequate without much ado. As to the question whether digitalized commodities qualify for postal trades where Consumer Protection Law applies, to balance the proper interests claimable to both consumers and the entrepreneur, and to rule out consumer's abuse of rights where ethics is at risk, it is fit and proper to restrict or rule out the transaction of certain commodities under specified categories, For one thing, considering the risks of digital date or digitalized commodities containing digitalized information, in respect of which copying or reproduction is as easy an pie, as to which it is not easy to ascertain whether the consumer has indeed returned the utility right, there is reason to doubt the suitability of granting unilaterally the consumer the right of rejection. Still, in so far as the digitalized commodity remains unopened, or that it is supplied with copying or reproduction procedures, product initiation means, then the risk of copying or reproduction is ruled out and in this instance Consumer Protection Law should apply notwithstanding. 5. Topics Relating to Consumer Protection and Privacy Protection The latest amendment to Consumer Protection Law with respect to electronic trades by including postal purchase on the Internet under Article 2 Section 10, and by the addition of Article 19-1 to allow for the application of the Hesitation Period respecting postal purchase trades, means more comprehensive protection for on-line consumers all right, still, due to the riddling complexity of the operation of electronic commerce at least a portion of the contents of transaction hardly fit the latest provisions in Consumer Protection Law, such that conflict seems to have emerged between protection for the consumers and reasonable risks borne by the entrepreneur. It is therefore suggested that the competent authorities consult the “Distance Marketing of Consumer Financial Services Directive (Directive 97/7/EC)” issued by the European Union with regard to the exclusion of contractual obligations, and conduct a comprehensive review of contents possible for inclusion in a piece of electronic transaction so as to delete commodities or services inappropriate for stipulation under Article 19 and article 19-1 by amendments to existent legislation, both administration and legislature ought to reinforce efforts in relevant protection mechanism to meet the challenging the Internet Age of our times paralleled with efforts to go in line with ongoing trends for consumer's protection on the international scenario. Next, responding to the point of key interest to consumers regarding protection of personal date entangled in B2C electronic transactions, the Ministry of Justice has publicized the protocol of amendments to Personal Date Act, whereby the scope of coverage extend to overall latitudes without discrimination, incorporating the obligation to serve notice respecting the collection and use of data, restriction on the collection of children's data and of sensitive data, group litigation, and increase of indemnity amounts. Upon legislative ratification of amendments to Personal Data Protection Act in the future, operators of electronic trades will have to face certain restrictions collecting data on websites in addition to being charged with duty of notice, so that without securing consent from the person whose data is being solicited for collection, the operator may not engage in inappropriate use, let alone selling of personal data in question, it is anticipated that our existent on-line marketing mode would hence go through substantial change. To prevent operators of electronic transactions in this country from frustrations adapting to the forthcoming statutory amendments, it is suggested that the competent authorities upon legislation of said amendments prepare models of policy for protection of personal privacy confronting operation of electronic transactions. 6. Topics Relating to Cash Flow titlehough respecting electronic transactions, safe payment scheme has already been established for the market; further to that, the Banking Bureau of the Financial Supervisory Commission, Executive Yuan, has published aimed at web banking operations “Pattern Contracts for Personal Computerized Banking Services and Web Banking Service” and stipulated “Criterion for Banking Institution's Operation and Safety Control of Electronic Banking Services”, to ascertain safeguarding of web payments; as regards petty payments amendment has been made to Banking Law by the introduction of Article 42-1, whereby cash buildup cards derive their legality basis, along with Procedures governing Bank's issue of cash buildup cards implemented such that such cards are available for on-line transactions, these are much in the promotion phase, yet distant to universal application. In practice, it is common and popular for credit cards to be used in on-line transactions, still, such form of payment could strike a potential risk for the card owners, to effectively protect card owners' safety at consumption and proper interests, it is suggested that the competent authorities promptly institute “Pattern Contract Terms Respecting Web Transactions Using Credit Cards” to meet inadequacies of stipulation on credit card operation over on-line transactions. Concurrent with the increased frequency of cash flow via the internet, there may develop more of payment tools in the foreseeable future, and more funds may come and go via the Net, however, the existent legislation respecting electronic transfer of funds currently is far from adequate, it is appealed that the competent authorities institute relevant legislation in time to help build a sound and wholesome environment for out net financial industry as well. 7. Tax Related Topics Internationally there has not reached, to this day, unified consensus respecting complicated net taxing policy, since that taxation with respect to on-line transactions is not as simplistic as would suffice the notion that “as long as there is income, there is duty”, it involves by and large concerns such as development of the Internet industry, fairness of taxation and even national competition, so in so far as net taxation is concerned, the concern should extend to deliberation of complementally measures apart from just reviewing if existent taxation laws are adequate for exploitation and in the negative case, if ad hoc stipulation is required
On the development of cyber insurance market: a legal aspect1.Introduction Cyber insurance is one of the effective tools to transfer cyber and IT security risk and minimize potential financial losses. Take the example of Sony’s personal information security breach, Sony made a cyber insurance claim to mitigate the losses. In Taiwan, the cyber insurance market demand was driven by Taiwan’s Personal Information Protection Act (PIPA) which was passed in April 2010 and implemented in Oct 2012. According to PIPA, a non-government agency including the natural persons, juridical persons, or group shall be liable for the damages caused by their illegal collection, processing or using of personal information or other ways of infringement on the rights of the individual whose personal information was collected, processed or used. The non-government agency may thus pay each individual NT$500 to NT$20,000 and the total compensation amount in each case may be up to NT $200 million if there is no evidence for actual damage amount. However, the cyber insurance market does not prosper as expected one hand because of the absence of incentives of insurance companies to develop and promote the cyber-insurance products and on the other hand because of the unaffordable price that deters many companies from buying the insurance. Some countries have tried to identify the incentives and barriers for the cyber insurance market and have taken some measurements to kick start its development. In this paper, the barriers for the cyber insurance market were addressed and how American government promoted this market was mentioned. Finally, suggestions on how to stimulate the cyber insurance market growth were proposed for reference. 2.What is cyber insurance? Insurance means the parties concerned agree that one party pays a premium to the other party, and the other party is liable for pecuniary indemnification for damage caused by unforeseeable events or force majeure1. Thus, the cyber insurance means the parties concerned agree that one party pays a premium to the other party, and the other party is liable pecuniary indemnification for damage caused by cyber security breach. The cyber insurance usually covers the insured's losses (or costs) and his liabilities to the third party. For example, the insured was to be liable for the damages caused by the unlawful disclosure of identifiable personal information belonging to the third party resulted from the insured's negligence. 2Typically, cyber insurance covers penalties or regulatory fines for data breaches, litigation costs and compensation arising from civil suits filed by those whose rights are infringed, direct costs to notify those whose personal data was illegal collected, processed or used and so on. 3 3.What are the barriers for cyber insurance market? Per the report made by European Network and Information Security Agency in2012, the following issues have significant influence on incentives of insurers to design and provide cyber –insurance products, including uncertainty about the extent of risk and lack of robust actuarial data, uncertainty about what risk is being insured, fast-paced nature of the use of technology, little visibility on what constitutes effective measures, absence of insurer of last resort to re-insure catastrophic risks, and perception that existing insurance already covers cyber-risks 4. In Taiwan, insurance companies face the same issues as mentioned above when they tried to develop and promote the cyber-insurance products. However, what discourages the insurance and re-insurance companies from investing in the cyber-insurance market most is the lack of accurate information to figure out the costs associated with different information security risk and thus to price the cyber insurance contract precisely. Several cases involving personal data breach did happened after Taiwan’s PIPA became effective on Oct 1th 2012, but few verdicts have been made. It is not easy to master the direct costs or losses resulting from violation of PIPA, including penalties or fines from regulator,, compensation to the parties of the civil suit who claim their personal data were unlawfully collected, processed or used, litigation costs and so on. Otherwise, indirect costs or losses such as media costs, costs to regain reputation or trust of consumers, costs of deployment of proper technical measures to prevent the data breach from happening again etc. are difficult to calculate. Therefore, it is not easy to identify the costs of information security risk and thus to calculate the premium the insured has to pay precisely. The rapid development of technology also has a negative impact on the ability of the insurers to master the types of the information security risk which shall be insured and its costs. Accompanied with the convenience and efficiency of applying new technologies into the working environment, security issues arise, too. For example, the loss or theft of mobile or portable devices may result in data breaches. In 2012, an unencrypted laptop computer with personal information and other sensitive information of one of NASA's employees was stolen from his locked vehicle and this led to thousands of NASA's workers and contractors at risk. 5And, per the report made by a NASA inspector, similar data breaches had been resulted from the lost or theft of 48 NASA laptops and mobile computing devices between April 2009 and April 2011. 6 There is no singe formula which could guarantee 100% security, but some international organizations have promulgated best practices for information security management, such as ISO 2700x standards. 7In Taiwan, Bureau of Standards, Metrology and Inspection (BSMI) which belongs to the Ministry of Economic also consulted ISO standards and announced Chinese National Standards on information security. For example, BSMI consulted ISO 27001 “Information technology – Security techniques – Information security management systems – Requirements” and then promulgated CNS27001. Theoretically, if the company who tries to buy cyber insurance policy that covers data breaches and damages to customers' data privacy can show that it has adopted and do implement the suite of security management standards well, the premium could properly be reduced because such company shall face less security risk. 8 However, it is still not easy to price the cyber insurance contract rightly because of no enough data or evidence which could approve what constitutes effective information security measures as well as no impartial, controversial or standard formula to value intangible assets like personal or sensitive information. 9 Finally, the availability of re-insurance programs plays an important role in the cyber insurance market because insurers would appeal to such program as a strategy of risk management. The lack of solid and actual data as mentioned above would discourage re-insurers from providing insurance policies that covers the insured’s losses and liabilities. Therefore, insurers may not be keen to develop and offer cyber insurance products. 4.The USA experience on developing cyber insurance market 4.1Current market status Due to the increase of the number of data breaches, cyber attacks, and civil suits filed by those whose data were illegal disclosed to third parties, more and more enterprises recognize the importance of cyber and privacy risks and turning to cyber insurance to minimize the potential finical losses. 10 However, the increased government focus on cyber security also contributed to the rapidly growth of the cyber insurance market. 11 For example, US Department of Homeland Security has been aware of the benefits of the cyber insurance, including encouraging better information security management, reducing the finical losses that a company has to face due to the data breach and so on. 12 Compared to other lines of insurance, cyber insurance market is not mature yet and is small in USA. For example, the gross premiums for medical malpractice insurance are more than 10% of that for cyber insurance market. However, the cyber insurance market certainly appears to grow rapidly. Per the survey made by Corporate Board Member & FTI Consulting, 48% of corporate directors and 55% of general counsel take highly of the issue of data security. 13And, per the report made by Marsh, there are more and more companies buying cyber insurance to cover financial losses due to the data breach or cyber attack, and the number of Marsh’s US clients purchasing cyber insurance increased 33% in 2012 over 2011. 14 4.2What contributed to the growth of the cyber insurance market in USA? Some measurements taken by the government or regulatory intervention had impacts on the incentives of companies to carry cyber insurance. CF Disclosure Guidance published by U.S. Securities and Exchange Commission in Oct 2011 mentioned that except the operation and financial risks, public companies shall disclose the cyber security risks and cyber incidents for such risks and incidents may result in severe finical losses and thus have a board impact on their financial statements. 15 And, according to the guidance, appropriate disclosures may includes risk factors and this potential costs and consequences, cyber incidents experienced or expected and theirs costs and consequences, undetected risks related to cyber incidents, and the relevant insurance coverage. 16 Such disclosure requirements triggered the demands for the cyber insurance products because cyber insurance as an effective tool to transfer financial losses or damages could be an evidence that firms are managing cyber security risks well and properly. 17 The demand for cyber-insurance products may be created by government by means of requiring government contractors and subcontractors to purchase cyber insurance under Federal Acquisition Regulations (FAR) which mentions that contractors are required by law and FAR to provide insurance for certain types of perils 18. Also, in order to sustain the covered critical infrastructure (CCI) designation, the owner of such infrastructure may need to carry cyber insurance, too. 19 On the other hand, referring to Support Anti-Terrorism by Fostering Effective Technologies Act of 2002 which requires those who provides Federal and non-Federal Government customers with a qualified/certificated anti-terrorism technologies shall obtain liability insurance of such types but the amount of such insurance shall be reasonable and will not distort the sales price of such technologies 20, the federal government tried to draw and enact legislation that provides limitations on cyber security liability 21. If it works, this could raise the incentive of insurers because amounts of potential financial losses which may be transferred to insurers are predictable. Besides, referring to Terrorism Risk Insurance Act of 2002 which established the terrorism insurance program to provide compensations to insurers who suffered the insured losses due to terrorist attacks 22, the federal government may increase the supply of cyber insurance products by means of providing compensations to insurers who suffered the insured losses due to cyber security breach or cyber attacks. 23 Otherwise, some experts and stakeholders did suggest the federal government implement reinsurance programs to develop cyber insurance programs. 24 Finally, to solve the problem of information asymmetry, the government tried to develop the legislation that could build a mechanism for information-sharing among private entities. 25 Also, it was recommended that the federal government may consider to allow insurance firms to establish an information-sharing database together so that insurers could accordingly develop better models to figure out cyber risks and price the cyber insurance contract accurately. 26 5.Suggestions and conclusion Compared to USA where 30-40 insurers offer cyber-insurance products and thus suggested that a more mature market exists 27, the cyber insurance market in Taiwan is still at the first stage of the product life cycle. Few insurers have introduced their cyber-insurance products covering the issues related to the personal information breach. Per the experience how US government developed the cyber insurance market, the following suggestion are made for reference. First, the government may consider requiring his contractors and subcontractors to carry cyber insurances. This could stimulate the demand for cyber insurance products as well as make cyber insurance prevail among private sector as an effective risk management tool. Second, the government may consider establishing re-insurance program to offer compensation to those who suffer the insured’s large losses and damages or impose limitations of the amount insured by law. However, it is undeniable that providing re-insurance program is not feasible as the government’s budget is not abundance. Finally, an information-sharing mechanism, including information on cyber attacks an cyber risks, may be helpful to solve the problem of information asymmetry. 1.Insurance Act §1 (R.O.C, 2012). 2.European Network and Information Security Agency, Incentives and barriers of the cyber insurance market in Europe , June 2012, at 8, http://www.enisa.europa.eu/activities/Resilience-and-CIIP/national-cyber-security-strategies-ncsss/incentives-and-barriers-of-the-cyber-insurance-market-in-europe. 3.Ben Berkowitz, United States: insurance-cyber insurance, C.T.L.R. 2012, 18(7), N183. 4.Supra note2, at 19-25. 5.Mathew J. Schwartz, Stolen NASA laptop had unencrypted employee data , InformationWeek, November 15, 2012 11:17 AM, http://www.informationweek.com/security/attacks/stolen-nasa-laptop-had-unencrypted-emplo/240142160；Ben Weitzenkorn, Stolen NASA laptop prompts new security rules, TechNewsDaily , November 15 2012 11:35 AM, http://www.technewsdaily.com/15482-stolen-nasa-laptop.html. 6. Irene Klotz, Laptop with NASA workers' personal data is stolen, CAPE CANAVERAL, Nov 14, 2012 8:47pm, http://www.reuters.com/article/2012/11/15/us-space-nasa-security-idUSBRE8AE05F20121115. 7.The Government of the Hong Kong Special Administrative Region , An overview of information security standards, Feb 2008, at 2, http://www.infosec.gov.hk/english/technical/files/overview.pdf；Supra note2, at 21. 8.Supra note2, at 21-22. 9.Id. 10.Id. 11.Id. 12.U.S. Department of Homeland Security, Cyber security insurance workshop readout report, Nov 2012, at 1, http://www.dhs.gov/sites/default/files/publications/cybersecurity-insurance-read-out-report.pdf. 13.John E. Black Jr., Privacy liability and insurance developments in 2012, 16 No. 9 J. Internet L. 3, 12 (2013). 14.Marsh, Number of companies buying cyber insurance up by one-third in 2012, March 14, 2013, http://usa.marsh.com/NewsInsights/MarshPressReleases/ID/29878/Number-of-Companies-Buying-Cyber-Insurance-Up-by-One-Third-in-2012-Marsh.aspx. 15.U.S. Securities and Exchange Commission, CF Disclosure Guidance: Topic No. 2 Cybersecurity, October 13, 2011, http://www.sec.gov/divisions/corpfin/guidance/cfguidance-topic2.htm. 16.Id. 17.Supra note2, at 6.(last visited Dec. 31, 2012) 18.Federal Acquisition Regulations §28.301. 19.E. Paul Kanefsky, Insuring against cyber risks: congress and president Obama weigh in, March 2012, http://www.edwardswildman.com/newsstand/detail.aspx?news=2812. 20.Support Anti-Terrorism by Fostering Effective Technologies Act of 2002 §864. 21.Supra note19. 22.Terrorism Risk Insurance Act of 2002 §103. 23.Supra note19. 24.Id. 25.Id. 26.Id. 27.Supra note2.
How Does Taiwan Respond to Tax Challenges Arising from DigitalizationHow Does Taiwan Respond to Tax Challenges Arising from Digitalization Yuan-Qing, Liao Attorney and Legal Researcher 2022/3/24 I. The Tax Challenges arising from Digitalization According to the Ability-to-pay principle, companies need to pay income tax for their income or profit. Nevertheless, in order to avoid their tax obligations, Multinational Corporations (MNCs) have been continuously developing sophisticated and refined tax planning practices to disconnect or mismatch between “where value is created” and “where taxes are paid”, and such practices erode the tax base.[1] A well-known example of trade model under digitalization of MNCs is that “MNCs do not necessarily have to open domestic physical stores or set up servers, those domestic consumers can purchase goods and services from MNCs directly through the Internet”. This trade model not only breaks the international tax rules “With Permanent Establishment (PE), With taxing power”, but also disconnects or mismatches between “where value is created” and “where taxes are paid” more perfectly. As a result, the taxing power of “where value is created” is eroded. This is a classical type of challenges faced by tax regulators in the age of digitalization of the economy. In response, The European Commission (EC) and The Organization for Economic Cooperation and Development (OECD) had respectively proposed new plans to ensure that digital business activities are taxed in a fair and friendly way. (I) The Digital Service Tax proposed by EC[2] In 2018, EC proposed a temporary tax - Digital Services Tax (DST), which a basic rate of 3% to be imposed on revenues of a digital platform when such platform meets all of the following criteria, including (1) online placement or advertising services, (2) sales of collected user data, (3) facilitate interactions between users, (4) annual worldwide revenues exceeding 750 million euros and (5) taxable revenues within the European Union (EU) exceeding 50 million euros.[3] Concerning that the DST apparently targeting US MNCs - Google, Amazon, Facebook and Apple (GAFA), the US government once threatened to impose retaliatory tariffs. Insofar, it seems that only a part of MNCs will be immediately affected by DST, but the entire trading systems in the rest of the world will be impacted if the retaliatory tariffs conducted by the US take effect. (II) The Two-Pillar plan released by OECD[4] In October 2020, OECD had released Reports on the Pillar One and Pillar Two Blueprints (The Two-Pillar plan), which aimed to terminate the international dispute resulting from DST of EC and provide solutions for tax challenges arising from the digitalization of the economy in the long term.[5] Pillar One is “Unified Approach”, to ensure the exercise of taxing powers of governments and a fairer distribution of profits among countries where largest MNCs, including digital companies are located at. It would “re-allocate” the taxing powers over MNCs among governments of different jurisdictions. The governments located at the place where MNCs have business activities and earn profits will have the tax powers over those MNCs, even MNCs do not have a physical presence there. Pillar Two is “Global Anti-Base Erosion rules (GloBE)”, tried to protect tax bases of countries through the introduction of “Global Minimum Tax (GMT)” which sets up a minimum corporate income tax rate on MNCs to prevent tax competitions among countries. Compared with DST proposed by EC, which focuses on the taxing powers of the government that is located at the place where value is created. The Two-Pillar plan focuses more on both re-allocation of international taxing powers and protects the tax base of each country. (II) The Consensus on The Two-Pillar plan[6] The Group of Seven (G7[7]), G20[8] and 137 countries and jurisdictions OECD stated not only agreed to remove the DST or the similar measures, but also had a consensus on Two-Pillar plan to reform international taxation rules[9]. In order to ensure that MNCs pay a fair share of tax wherever they operate, as well as to set a GMT rate to protect tax base of each country. Moreover, the new international tax system that the GMT rate is 15%[10] is expected to take effect in 2023 and an estimated 154 domestic MNCs will be thus affected accordingly. II. The Response of Taiwan to Tax Challenges A foreign enterprise has to pay Taiwan taxing regulators enterprise income tax for income generated in Taiwan in the premise that this foreign enterprise has a PE in Taiwan. In other words, a PE in Taiwan, which is recognized as the fixed place of business through which the business of an enterprise is wholly or partly carried on[11], is the determinant that affects the power of Taiwan to tax the profits of a foreign enterprise. In brief, “No PE, No taxing power”. In the era of digitalization, the foreign enterprises can create value through the digital means without establishing a PE in Taiwan. The situation of disconnection or mismatch between where value is created and where taxes are paid not only erodes the taxing power of Taiwan, but also breaks the principle of equality in substantive taxation[12] as mentioned above. As a result, the Ministry of Finance (MOF) adjusted and implemented several new taxation policies or measures, including, inter alia, “Income Taxation on Cross Border Electronic Services[13]” and “Income Basic Tax Act”. These two measures were once considered similarly to DST or GMT individually. (I) Income Taxation on Cross Border Electronic Services Responding to tax challenges posed by foreign enterprises under digitalization, the MOF promulgated a new income tax regulation “Income Taxation on Cross Border Electronic Services[14]”, and asked those foreign enterprises who provide cross-border electronic services to purchasers in Taiwan, shall register for business value-added tax (VAT), including register a tax identification number and file taxes. The causation between the electronic services and national economy shall be the determinant to identify income generated in Taiwan: The payment made by a purchaser located in Taiwan to a foreign enterprise in order to procure following products or services provided by such foreign enterprise shall be deemed as income generated in Taiwan. (1) The product that is produced, manufactured, transmitted, downloaded and saved in a digital device and can only be provided with assistance by individuals or enterprises in Taiwan. (2) The real-time, interactive, handy, and continuing electronic services that are provided through digital means A foreign enterprise provides a digital platform to conduct transactions, once one of the transaction parties is in Taiwan, the sales amounts shall be recognized as income generated in Taiwan (II) Income Basic Tax Act (IBT) To promote domestic economic development and industrial innovation, Taiwan has enacted many laws on tax incentives, mainly tax deductions and credits. However, these laws have been overdeveloped, the implement period has also been excessively extended, which contributes to severely unreasonable tax burden inequality. Therefore, Taiwan officially introduced Alternative Minimum Tax System (AMT) and promulgated Income Basic Tax Act (IBT)[15] since 2006. As a separate taxation system, AMT is imposed by government that places a floor on the percentage of taxes a certain filer must pay, regardless of how many tax incentives the filer may claim[16]. Hence, in accordance with Article 1 of IBT “[T]he purposes of this Act are to uphold tax equity, to ensure tax revenue for the country, and to establish the basic requirements of profit-seeking enterprises and individuals in regard to their obligation to fulfill their income tax burden as a contribution to public finance.” AMT uses a different set of rules to determining taxable income compared with the normal tax calculations. Once the regular income-tax amount is higher than the AMT, the taxpayer pays the regular income tax. Thus, if AMT is higher, then the taxpayer pays the AMT. And according to Article 8 (1) of IBT, the enterprise IBT rate is prescribed of 12% since 2013.[17] However, according to Article 3 (1) (5) of IBT[18], a foreign enterprise without domestic fixed place of business or domestic business agent is not regulated by IBT. (III) Conclusion “Income Taxation on Cross Border Electronic Services (Hereinafter referred to as “the measure”)” asked the foreign enterprises to file income tax. But the elements of “the measure” are different from DST. The reasons may be (1) “This measure” has been designed and promulgated earlier than DST and (2) The DST is essentially more like alternative minimum tax. IBT may effect by the concept of “with PE, with taxing power”. Therefore, a foreign enterprise without PE in Taiwan is not regulated by IBT, this means “No PE, No obligation of IBT”. Also, the IBT rate of profit-seeking enterprise is 12%. III. The Remaining Problems of Tax System in Taiwan It is foreseeable that with the international consensus on launching the Two-Pillar Plan in 2023, those countries and jurisdictions will start to adjust their tax policies, inclusive of increasing the income tax rate as well as basic tax rate. As long as the issue of "Taiwan companies abusing tax planning to hide wealth aboard and avoid domestic tax obligations" is not solved, this issue will lead to the continuous erosion of Taiwan taxing power. Concretely, in order to reduce domestic tax burden, several Taiwan companies abusing tax planning to detain profits in foreign affiliated companies or disguise as foreign companies. Though Income Taxation on Cross Border Electronic Services has taking effect, those companies pay income tax only on income generated in Taiwan instead of global income. Therefore, the Controlled Foreign Company Rules and the Place of Effective Management Rules have been proposed. (I) The Controlled Foreign Company Rules A controlled foreign corporation (CFC) is a corporate entity that is registered and conducts business in foreign countries or jurisdictions, and is either directly or indirectly controlled by a resident taxpayer. According to Article 43-3 of the Income Tax Act, if a parent company holds 50% or more of the shares of a foreign subsidiary, or has significant influence on such foreign subsidiary, the subsidiary may be seen as a conduit of the parent company and subject to domestic enterprise income, whether there is dividend distribution to the parent company or not, unless the subsidiary can pass the substantial activity test or its revenue is below a certain threshold.[19] Yet, the “Paragraph 3”, compared with “Paragraph 4”, is not ruled the “a CFC can deduct the domestic income tax from foreign income tax it paid[20]”, which may result in double taxation. The Taiwan CFC rules have not come into effect yet. However, according to the ancillary resolution passed by Legislative Yuan[21], our CFC Rules will come into effect within one year after the tax amnesty legislation, "The Management, Utilization, and Taxation of Repatriated Offshore Funds Act", expires. Namely, the Taiwan CFC Rules will finally come into effect in 2022 at the latest. (II) The Place of Effective Management Rules The place of effective management (PEM) is defined as a place where key managements and commercial decisions a business entity substantially made.[22] This means, once a foreign company sets and operates a branch in Taiwan, and this branch substantially made key managements and commercial decisions for the foreign company, then it will be deemed as a PEM, the foreign company will also be deemed as a domestic company, and will be subject to tax assessment in accordance with the Taiwan Income Tax Act and other tax regulations.[23] Following the PEM rules, which is incorporated into Article 43-4 of the Income Tax Act, the elements of PEM including (1) decision making location, (2) record keeping and maintenance location, and (3) actual operating location are all in Taiwan. However, take foreign experience for example, German practice believes that the PEM rules only need to list "decision making location" as a necessary condition. The rest elements "record keeping and maintenance location" and "actual operating location" are more like reference factors than necessary conditions[24]. The Taiwan PEM rules list all three elements as necessary conditions, which may probably cause excessive restrictions on future applications. And the PEM Rules were announced by the MOF in July 2016, which have yet to take effect neither. (III) Attachment: The Sophisticated and Conflicting Tax System The enterprise income tax rate in Taiwan is 20% to 24% in accordance with Article 5 (5) and Article 66-9 (1) of Income Tax Act. Still, to achieve specific policy goals by promoting or suppressing certain behaviors, a policy that oriented tax deductions and credits is called tax incentives, and the disadvantage of which is apparently turn the tax burden into inequality. In the end, to solve the inequality of tax burden resulting from tax incentives and to ensure tax revenue, the minimum tax will be levied by AMT. The AMT rate in Taiwan is 12% as aforementioned. The implementation of tax incentives and AMT has made the domestic tax system over-complicated. Since the overused tax incentives have abnormally increase the amount of uncompetitive enterprises, who heavily rely on them. While the AMT may strangle the enterprises, who are compliance with economic policies. Then, the interaction and conflicts between tax incentives and AMT not just complicate the domestic tax system, also substantively result in unpredictability and inconsistency of domestic tax environment, which may cause a double-loss situation between tax revenue for the country and economic development policies. IV. Conclusions and Prospects (I) Conclusion Amend the Income Basic Tax Act and Increase Enterprise Rate to at Least 15% First, those foreign enterprises without PE but create value in Taiwan are not ruled by IBT. Second, the enterprise IBT rate in Taiwan is now 12%, apparently lower than GMT of 15%. If IBT rate maintains 12% through 2023, the difference between GMT and IBT may be deemed as a harmful tax-based competition. Hence, it is imperative to amend the IBT to rule the foreign enterprises without PE but create value in Taiwan and increase the enterprise IBT rate to at least 15%. Once consider that GMT is aimed at large MNCs, the IBT may adopt a categorized approach and set different rates based on the size of the enterprise. For instance, increase the IBT rate of MNCs that meet all GMT criteria to 15%, and the rest maintains 12%. Amend and Take CFC rules and PEM rules into effects A domestic company pays income tax on global income, while a foreign company with PE in Taiwan pays income tax on income generated in Taiwan. Responding to digitalization, the implement of Income Taxation on Cross Border Electronic Services regulates foreign companies without PE in Taiwan to pay income tax generated in Taiwan fairly. It is necessary to implement both CFC rules and PEM rules, to prevent domestic companies from abusing tax planning to detain the profit in foreign affiliated companies or to disguise as foreign companies for reducing domestic tax burden, which may continuously eroding taxing power of Taiwan. However, CFC rules and PEM rules still leave some problems to be improved and solved as aforementioned, which is undoubtedly the obligation of Taiwan government. (II) Prospects Substantive Review the Tax Incentives and Reconstruction of Taiwan Tax System The Reasoning of Interpretation No.565 mentioned that “[W]hile taxpayers should, under the principle of equality in taxation, pay taxes which they are supposed to pay according to their actual taxpaying ability, it is not forbidden by Article 7 of the Constitution to specify, with reasonable cause, differential treatments by way of exceptions or special provisions within the scope of discretion authorized by law to grant taxpayers of a particular class tax benefits in the form of tax reduction or exemption in order to promote the public interest.”. The principle of ability-to-pay means that those who have greater ability to pay taxes, usually measured by income, wealth and financial capability, should pay more in taxes compared with those who have minor capability. Since taxation is the pecuniary obligation with non-counter performance under public law, the only foundation of legitimacy is the principle of ability-to-pay. Therefore, this is the core principle of the tax law. To achieve specific policy goals, a policy that oriented tax deductions and credits to promote or suppress certain behaviors is called tax incentives, which can be permitted only in case of justifiable reasons presented. Nevertheless, the weak connection between the policy goals and the tax incentives made the acts, especially the tax incentives, unreasonable. Additionally, the tax-form expenditure is generally a formal review of fiscal balance, no substantive review of the impact on principle of ability-to-pay taxation and the compensation for it. Under these premises, the excessively extended implementation period of tax incentives has resulting in severely unreasonable tax burden inequality and excessive reliance of uncompetitive enterprises on tax incentives. To sum up, instead of implement the tax incentives to limit the principle of ability-to-pay, then solve it with AMT. The enactment, amendment and implement of tax laws must strictly abide by above principle. The restriction of above principle must be strictly review and limited as a whole. Namely, it is better to comply with the principle of ability-to-pay strictly. Therefore, it is important to substantively review the domestic tax incentives and reconstruct the domestic tax system. Ministry of Digital Development and The Tax Reform Taiwan government is intending to form Ministry of Digital Development (MODD),[25] which is considered as a step toward the right direction to coordinate and expedite the development of Taiwan’s digital economy. According to Article 1 of the Organizational Act of MODD, "[T]o promote the development of digital industries such as national communications, information, cyber security, network and communication, to undertake digital governance and digital infrastructure, and to assist the digital transformation of public and private sectors, the Executive Yuan has specially established the Ministry of Digital Development."[26] However, in name of the above-mentioned policies and ideals, which may possibly related to tax policies. Thus, this article considered that, once the MODD is staffed with public servants and experts both proficient in tax law as well as forward-thinking, and given a clear mandate, the MODD may not only contribute significantly to both domestic digital transformation and the tax reform, but also improve the efficiency of tax administration and maximize the overall economic and social benefits. [1] OECD, 〈BEPS – Base Erosion and Profit Shifting〉, https://cleartax.in/s/beps-oecd (last visited Aug 20, 2021). [2] 拙著，〈柳暗花明的數位服務稅〉，工商時報名家評論，2021年5月17日，網址：https://view.ctee.com.tw/tax/29375.html，最後瀏覽日：2021年11月24日。 [3] 陳衍任，〈歐洲數位服務稅發展簡析〉，台灣經濟論衡，2020年3月，第18卷第1期，頁58，網址：https://www.ndc.gov.tw/Content_List.aspx?n=1BD4A3B93EF55A5F，最後瀏覽日：2021年4月21日。 [4] 拙著，〈勢在必行的全球企業最低稅負制〉，工商時報名家評論，2021年4月20日，網址：https://view.ctee.com.tw/tax/28814.html，最後瀏覽日：2021年11月24日。 [5] 拙著，〈勢在必行的全球企業最低稅負制〉，工商時報名家評論，2021年4月20日，網址：https://view.ctee.com.tw/tax/28814.html，最後瀏覽日：2021年11月24日。 [6] 拙著，〈取消數位服務稅已為國際趨勢〉，工商時報名家評論，2021年11月23日，網址：https://view.ctee.com.tw/economic/34152.html，最後瀏覽日：2021年11月24日。 [7] Mayer Brown LLP, 〈The G7 Agrees on a Broad Framework for Pillar One and Two〉, June 23, 2021, https://www.mayerbrown.com/en/perspectives-events/publications/2021/06/one-small-step-but-perhaps-one-giant-leap-for-global-tax-reform-the-g7-agrees-on-a-broad-framework-for-pillar-one-and-two (last visited Nov 11, 2021). [8] G20, 〈G20 ROME LEADERS’ DECLARATION〉, at 11 of 20, https://www.g20.org/wp-content/uploads/2021/10/G20-ROME-LEADERS-DECLARATION.pdf (last visited Nov 11, 2021). [9] OECD, 〈Mauritania joins the Inclusive Framework on BEPS and participates in the agreement to address the tax challenges arising from the digitalization of the economy〉, https://www.oecd.org/tax/mauritania-joins-the-inclusive-framework-on-beps-and-participates-in-the-agreement-to-address-the-tax-challenges-arising-from-the-digitalisation-of-the-economy.htm (last visited Nov 11, 2021). [10] Statement on a Two-Pillar Solution to Address the Tax Challenges Arising From the Digitalization of the Economy, at 4 (Aug 2021), available at https://www.oecd.org/tax/beps/statement-on-a-two-pillar-solution-to-address-the-tax-challenges-arising-from-the-digitalisation-of-the-economy-july-2021.pdf (last visited Aug 20, 2021). [11] Model Tax Convention on Income and on Capital 2010 (Full Version), at c(5)-1 (2010), available at https://read.oecd-ilibrary.org/taxation/model-tax-convention-on-income-and-on-capital-2010_9789264175181-en#page208 (last visited Aug 20, 2021) [12] 稅捐稽徵法第12條之1第1項：「涉及租稅事項之法律，其解釋應本於租稅法律主義之精神，依各該法律之立法目的，衡酌經濟上之意義及實質課稅之公平原則為之。」亦有釋字第420、460、496、519、597、625及第700號供參。 [13] 資誠，〈法國徵數位服務稅，我不跟進〉，2019年7月24日報導，網址：https://www.pwc.tw/zh/news/media/media-20190724-1.html，最後瀏覽日：2021年4月15日。 [14] 財政部賦稅署，〈外國營利事業跨境銷售電子勞務課徵所得稅制度簡介〉，2018年4月27日，頁1以下，網址：https://www.dot.gov.tw/download/dot_201804270002_1_doc_476，最後瀏覽日：2021年4月21日。 [15] 中華民國94年12月28日總統華總一義字第09400212601號令制定公布全文18條；本條例施行日期除另有規定外，自95年1月1日施行。 [16] 所得基本稅額條例第1條：為維護租稅公平，確保國家稅收，建立營利事業及個人所得稅負擔對國家財政之基本貢獻，特制定本條例。 [17] 財政部台財稅字第10100670710號函：自102年度起營利事業基本稅額之徵收率為12％。 [18] 所得基本稅額條例第3條第1項第5款：營利事業或個人除符合下列各款規定之一者外，應依本條例規定繳納所得稅：五、所得稅法第七十三條第一項規定之非中華民國境內居住之個人或在中華民國境內無固定營業場所及營業代理人之營利事業。 [19] 所得稅法第43條之3第1項：營利事業及其關係人直接或間接持有在中華民國境外低稅負國家或地區之關係企業股份或資本額合計達百分之五十以上或對該關係企業具有重大影響力者，除符合下列各款規定之一者外，營利事業應將該關係企業當年度之盈餘，按其持有該關係企業股份或資本額之比率及持有期間計算，認列投資收益，計入當年度所得額課稅：一、關係企業於所在國家或地區有實質營運活動。二、關係企業當年度盈餘在一定基準以下。但各關係企業當年度盈餘合計數逾一定基準者，仍應計入當年度所得額課稅。 [20] 參考「所得稅法增訂第43條之3建立我國受控外國公司(CFC)課稅依據，係以受控外國公司當年度盈餘，依控制公司對其持有之資本比率按「權益法」認列之國外投資收益。惟查此依權益法認列之投資收益，似漏未規定該關係企業在國外已納所得稅額可予扣抵，恐形成公司階段稅負重複課稅；對照本條第4項規範營利事業於實際獲配股利或盈餘時，國外已納所得稅額得予扣抵之規定，其疏漏自明。」立法院，〈受控外國公司課稅新制相關問題評析〉，110年8月，網址：https://www.ly.gov.tw/Pages/Detail.aspx?nodeid=6590&pid=210513，最後瀏覽日：2021年10月25日。 [21] 境外資金匯回管理運用及課稅條例自2019年8月15日起施行，施行期間2年，已於今（2021）年8月14日失效，故我國CFC制度至遲於明（2022）年8月14日前報請行政院核定施行日期。參考「另附帶決議針對105年增訂之「所得稅法」第43條之3條文（營利事業CFC制度），與106年增訂之「所得基本稅額條例」第12條之1條文（個人CFC制度），要求財政部於本案施行期滿後1年內報請行政院核定施行日期，有助落實反避稅條款。」立法院，〈制定境外資金匯回管理運用及課稅條例〉， 網址：https://www.ly.gov.tw/Pages/Detail.aspx?nodeid=33324&pid=184215，最後瀏覽日：2021年8月20日。 [22] OECD, 〈THE IMPACT OF THE COMMUNICATIONS REVOLUTION ON THE APPLICATION OF “PLACE OF EFFECTIVE MANAGEMENT”AS A TIE BREAKER RULE〉, at 4 (Feb 2001), https://www.oecd.org/ctp/treaties/1923328.pdf (last visited Aug 20, 2021). [23] 所得稅法第43條之4第1項：依外國法律設立，實際管理處所在中華民國境內之營利事業，應視為總機構在中華民國境內之營利事業，依本法及其他相關法律規定課徵營利事業所得稅；有違反時，並適用本法及其他相關法律規定。 [24] 參考「從德國的經驗回頭看台灣可以發現：台灣雖然立意良善地將「決策者或決策地」、「帳簿及會議紀錄的製作或儲存地」，以及「實際執行主要經營活動地」，「同時」列為PEM的認定標準。然而，其中只有「決策者或決策地」確實屬於PEM認定上的必要條件；至於將「財務報表、會計帳簿紀錄、董事會議事錄或股東會議事錄的製作或儲存處所」及「實際執行主要經營活動地」也列為PEM的認定標準，恐怕就值得商榷。因為上述兩項標準，固然可以作為認定企業的PEM是否在台灣境內的「參考因素」，但卻不適合作為認定企業的PEM在台灣境內的『必要條件』」。陳衍任，〈實際管理處所在適用上的爭議問題〉，月旦會計實務研究，2018年3月，頁29以下。 [25] 2021 Taiwan White Paper Overview, 〈Facing New and Existing Challenges Head On〉, at WP7 (2021), https://amcham.com.tw/wp-content/uploads/2021/06/June-2021-Taiwan-Business-TOPICS.pdf (last visited Aug 20, 2021). [26] 作者自譯。
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