Sun, Jan 08, 2006 - Page 8 News List

Cross-strait investments have to be scrutinized

By Lin Kien-tsu 林健次

In his New Year's speech, President Chen Shui-bian (陳水扁) declared that cross-strait trade exchanges should be "actively managed." This is nothing less than an admission that the current "effective management" policy has failed. Such courage should be praised.

The Chen government has failed to use easily-employed management tools: the Financial Supervisory Commission's (FSC) mechanism for disclosures and investigations and the Ministry of Finance's tax audit mechanism.

To protect investors, listed and over-the-counter (OTC) companies must reveal the destinations of their borrowed funds, reinvestments and overseas investments if the FSC deems it necessary. This is also the case in other nations.

Such disclosures must be made on a regular and long-term basis. Depending on the situation, the items to be disclosed, the frequency of such disclosures and the time between disclosures can be changed without amending the law.

These rules for regular and active disclosure of information by listed and OTC companies can be used to manage their overseas investments. In addition to having the power to demand that listed and OTC companies disclose their investment activities, the FSC also has an investigative department to investigate the accuracy of disclosed information and any possible criminal acts.

Furthermore, to achieve fair taxation, many countries request that their citizens pay tax on income earned overseas, which makes it very difficult to conceal illegal investments.

The ministry can thus initiate in-depth auditing and management of the overseas income of businesses.

But regrettably, though the overseas income of Taiwanese businesses must be integrated when reporting and paying taxes, individuals are not obliged to pay taxes on such income. Except for listed and OTC companies who have legal responsibilities vis-a-vis stock holders, Taiwanese businesspeople investing illegally -- including many of the statutory responsible persons of listed and OTC companies -- set up overseas companies in their own names to get around investment regulations. They shirk their responsibility to pay taxes in Taiwan and make it difficult for officials to investigate their investments.

To crack down on such shell games and achieve fair taxation, "active management" must move toward setting up regulations demanding that individuals pay taxes on their overseas income. The new minimum tax system that is being implemented this year stipulates that overseas income only be taxed by 2019 or 2020. The government should implement this regulation immediately.

Auditing by the FSC and the ministry would be the only thing worthy of being called "management." It would facilitate overall management of the "go west" policy by the Cabinet. Investments exceeding US$3 million or overseas investments by listed and OTC companies must be submitted to the FSC or the ministry for review and filing in order to be able to control future financial disclosures and taxes.

As long as Chen is sincere in his attempts to set up a fair, just and normal financial and economic system, the "active management, effective opening" policy will be easily implemented.

I am willing to give Chen one more chance, while observing his future actions as well as his words.

Lin Kien-tsu is director of the Department of Business Management at Tamkang University.

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