(本文翻譯自 陳冲 南橘北枳的公益信託 2022-06-22)
There’s a fable in Annals of Master Yan, in which Yanzi, the famous diplomat from the State of Qi says that oranges born in Huainan are trifoliate if born in Hauibei. The Question is why the sweet and juicy fruit taste different when the growing environment changed?
There had been no concept of trust in our country before. Although there were investment trust companies in the early Banking Act and trust receipts in the Personal Property Secured Transactions Act, the lack of the concept of trust in basic law had engendered fraud as investment trust companies de facto accumulated deposits and trust receipts in disguised form. Ordinary people had no idea what trust is. Banks, as the Trust Enterprise Act stipulates, can also engage in trust business, but more than 90% of the business of trust departments within banks are actually "quasi-trust", or frankly to say, selling mutual funds. After that, the public’s understanding of trust is even worse than before the Trust Enterprise Act was enacted.
The Trust Enterprise Act was enacted in 1996 and, the Chapter VIII Charitable Trusts was included as we were impressed by the good vision of charitable trust in western countries then. Unfortunately, it was only empty dream with no substantive contents from the beginning. Since 2002, large-scale charitable trusts have been established but later derided as tools for tax avoidance and shares control after review so that some honest trusts felt so unjust as the public held hostile attitude toward charitable trust. After media reported related topics, the Control Yuan submitted an investigation report in 2020, requesting amendments to the law. In early 2021, the Executive Yuan proposed the voluminous amendments, but most were only complementary measures to what ministries have already implemented in respective regulations now.
The aforementioned amendment draft focused mainly on charitable trust, as we can see there were 21 additional provisions included related to the issue. However, we can also see the inconsideration of legislation in early days. It has been one year since the amendment was sent to the Legislative Yuan, but the attention it draws is far less than that of the law governing special allowance funds. So, will the drawbacks be eliminated and performance of trusts really improved if the Legislative Yuan passed the third reading of the draft?
The feature of the amendment is the corporatization of consortium foundations, as the words “see the Foundations Act” in the explanations of the amendments suggests. Whether the Foundations Act is successful is yet to be debated, but by looking at the wrestling of interest groups beforehand and the subsequent negotiations that led to the hard-to-reach agreement finally, we can know that the outcome will not be that good. As the law being implemented for four years, there are still constant criticism about charitable trusts being used for tax avoidance and shares control. It is obviously a minimum requirement for the charitable trusts to be corporatized. What’s more, the charitable trust itself is only a contract, not a legal entity, and thus lacks legal personality. That is, it has no right to employee staff to do basic analysis, let alone to create public interests for the society. To put it rudely, the charitable trust itself, if compared to a human, has no brain in the skull, so of course has no ability to think. Perhaps some people may say that business can be handled by trustee, but trustee can merely concurrently engage in the business, and as Article 71-7 of the Amendment Provisions of the Trust Enterprise Act stipulates, the statutory trustee can only handle matters related to finance. And if the miscellaneous business is taken into account, the trust departments within banks are even more incapable of dealing these things. In fact, many charitable trusts outsourced their research, planning, accounting, and administrative business (often foundations), and the main reason is because they are under the law not allowed to recruit staff.
Charitable trust or foundations are established to complement the insufficiency of government, and that is why the society is willing to provide tax incentives. Don’t let the good intention turns to be bad outcome as tax avoidance tool due to improper handling or implementation. Based on painful experience of ministries, many anti-fraud provisions have been added to the amendment draft, but it seems that the purpose of the law is forgotten as the provisions touch slightly on how to reinforce the charitable purpose of the trusts. Even, according to the new provision (Article 75-1), it seems that people who have no major previous convictions are legally qualified for the public-interest supervisors shouldering heavy responsibilities. So, how can we expect it to work effectively?
As the saying goes, sunlight is the best disinfectant. To be open and transparent would be the best way running a charitable trust, and that it should also be open to public supervision as it is exempted from tax. Article 72-1 of the amendment draft, although sets requirement for information disclosure, is merely window dressing since it’s not retroactive and the meeting documents of advisory committee (equivalent to the board of directors of a company) do not need to be disclosed. What’s even more ridiculous is that the information only needs to be disclosed on the trustee’s website, so what’s the competent authority’s responsibility? Compared with other countries where the information is disclosed on government website, our provisions somewhat seem like children playing make-believe.
Charitable trusts, no matter what forms, should not change the content as the orange should not taste different if planted in Hauibei.
(Released on Economic Daily News, Jun. 22th, 2022)