The ECCT's Human Resources committee hosted a half-day forum on the topic "New challenges, critical employment, and other legal Issues in the pandemic era". At the event legal and tax experts from Baker McKenzie and KPMG, shared information and best practices of critical HR and labour issues in the pandemic era to better equip corporations to cope with the current and future challenges. The forum comprised two sessions on employment and workforce issues related to remote working management, obstacles met and resolved in coping with the Covid-19 pandemic and tax issues. The speakers were Howard Shiu, Partner at Baker McKenzie, and co-chair of the HR committee; Pamela Tsai, Partner at Baker McKenzie; Chafic Nassif, President of Ericsson and Lynn Chen, Tax Partner at KPMG Taiwan, and co-chairperson of the ECCT's Tax committee. The sessions were followed by a lunch and a panel discussion featuring all of the presenters, hosted by Seraphim Ma, Executive Senior Partner at Baker McKenzie.

In his presentation, Howard Shiu spoke about the three phases of responses to the coronavirus pandemic, which he referred as the three Rs: Resilience, Recovery and Renewal. The first phase was marked by improving resilience. Measures companies have adopted to survive have included workforce reductions, furloughs, salary cuts, implementing Working from Home (WFH), Working from Anywhere (WFA), among others. He noted that most companies in Taiwan did not have to implement many of these measures (except for a few in sectors like tourism).

After the initial resilience phase, comes the recovery phase, which involves preparing and getting employees to return to the office (RTO), an increase in vaccinations, testing, and tracking, among others. The final phase, renewal, is about adjusting to the new normal by setting up virtual offices, WFH and WFA. This will entail digital transformation, adjustments in the labour force and labour laws. He noted that Taiwan could be left behind much of the world in the renewal phase because companies have not been forced to make radical changes given the relatively mild restrictions placed on doing business on the island compared to other countries. Because of the relatively peaceful pandemic experience in Taiwan, companies and employees have not had to learn new skills or adopt new technologies that have been essential in other countries experiencing severe restrictions and lockdowns. For example, Taiwan has not widely adopted digital documents and signatures or better technologies for holding virtual group activities.

There are many legal implications of the new normal that need to be considered. For example, can companies force employees to get a Covid-19 vaccine. According to Shiu, the answer is no for various reasons. He said that employees may ask for proof of vaccination. However, they may not terminate employees for refusing to provide it. Companies also may not ask employees to provide negative Covid-19 tests. He said that employers may encourage employees to wear devices for tracking purposes, but healthcare authorities do not regard this as necessary. Employers also have the right to restrict persons, including employees, from entry to offices or facilities owned by them. However, it is questionable legally if they may impose disciplinary action on those that refuse.

The ability to work from anywhere has raised a number of new work options. Existing employees may move to locations of their choice, companies can hire people in other countries while people in Taiwan may find work with foreign entities without a presence in Taiwan. As long as technological issues are resolved, these are less likely to pose a problem than time difference (people tend to become exhausted if they have to work with colleagues in time zone of more than two to three hours' difference). But there may be labour law, immigration, and tax issues. If people hired are not located in Taiwan, the Labour Standards Act will not apply but what if existing employees relocate and want to keep their national health insurance? There are also issues of work permits and working hours to consider, which depend on various factors such as whether the foreign entity has a presence in Taiwan.

Other issues of Taiwan's labour laws may also make it difficult for WFA. In particular, authorities insist that companies continue to maintain attendance records, even if employees work from home. There are also questions to resolve regarding occupational safety liabilities. For example, if an employee is injured at home, will the company be responsible for damages? At the moment, there is no clear policy on this matter.

In her presentation, Pamela Tsai, Partner at Baker McKenzie, spoke about the legal issues related to termination and the post-pandemic workforce. She noted that Taiwan has fairly strict rules and limited grounds for termination. Employees may be terminated for economic or performance issues but may be challenged if they do not provide solid grounds. They may terminate employees on the grounds of cessation of business, operation losses, suspension of business due to a force majeure event or changes in "business nature". However, if operating losses are to be used as grounds for termination, companies have to have been posting losses for around two years, which precludes the Covid-19 pandemic period so far. Courts in Taiwan have so far not loosened requirements due to Covid-19 because Taiwan has not been severely affected and there is no clear indication that courts will loosen standards for termination.

A changing world is increasing demand for a modern workforce that includes both fixed term employees, agency workers, dispatch workers and gig workers. No industry is immune to the trend although some will be more affected than others. Laws are gradually being changed to better reflect the new reality, but the process is still in its infancy.

In Taiwan, the immediate employment compliance issue is related to misclassification claims and rising uncertainty over workers' status as employees or independent contractors. In the medium term, while the trend towards more gig economy workers continues, employment laws will need to be modified accordingly. Several countries like Germany and Japan are considering legal changes while California in the United States offers a potential solution for classifying gig workers as somewhere between full time employees with full benefits and gig workers without any benefits. California's so-called Proposition 22 classifies App-based drivers of transportation and delivery companies as independent contractors but with some benefits, such as a minimum earnings guarantee based on "engaged time" and health insurance for drivers who spend an average of more than 15 hours per week driving.

In Taiwan currently, the Ministry of Labour has a checklist of 25 items to distinguish the need for the establishment of an employment contract. However, it is not clear how many of the items need to apply in the ministry's determination, but special attention is paid to whether or not the person has to follow the company's work instructions. The courts, for their part, will look at whether the person has control over their work time and whether the person bears his/her own business risks (gets paid based on completing work tasks). The speaker offered the following advice to companies to ensure that their contract workers are not classified by authorities as employees: Make clear that the contract is not an employment contract, pay contractors based on work completion, instead of working hours, do not interfere in how the contractors work unless necessary, do not restrict the contractors from working for others and if they have to give work instructions, use wording like "suggest", "recommend" or "remind" rather than "require", "must" or "have to".

In the meantime, the ECCT's HR committee is advocating the creation under Taiwan law of a third employment classification that is somewhere between the current mutually exclusive classes of "employee" and "independent contractor" to give gig workers flexibility and freedom while allowing companies to provide some benefits without being forced into the full requirements associated with the "employee" classification.

In his presentation, Chafic Nassif gave an overview of his company's experience during the pandemic and made some predictions about the future of work. He noted that the pandemic has been a strong trigger for digitalisation and that good connectivity is a cornerstone for this change. The top priorities of people during the pandemic were education for children, connecting with relatives and connecting for work.

A surprising finding from Ericsson's research studies was that while a lot of people became unemployed during the pandemic, those that were able to take advantage of digital technologies benefited, and 29% of people actually earned higher incomes. Research also showed that people's priorities have shifted. Before the pandemic people cared more about value for money in the communication services packages but now care more about quality of connections and service. He said that mobile networks have worked pretty well considering the enormous rise in traffic during the pandemic.

In terms of its workforce, Ericsson responded early on in pandemic by encouraging most of its workforce to work from home, even before the WHO declared Covid-19 a pandemic, on the grounds that it was the best way to protect employees. It also withdrew from global conferences. To help employees upgrade their home offices, in addition to digital tools, the company arranged a contract with Ikea and subsidised the costs of desks, ergonomic chairs and desk lights for all of its employees. It has also arranged special leisure activities for employees, such as virtual concerts featuring famous artists.

Given the situation in Taiwan, Ericsson initially began with a A/B team split, whereby staff were split into two teams and only one team worked in the office at one time while the other worked from home. A little later on, all staff were encouraged to work from home, and they have done so globally for most of the past 10 months. However, around 15-20% of staffers in the Taiwan office still work in the office, although social distancing measures have been put in place.

WFH has worked well, according to Nassif. The clearest evidence of this is that Ericsson's work with its customers in rolling out 5G mobile infrastructure in Taiwan was done in little time, allowing all of Taiwan's mobile operators to launch 5G services in 2020. Thanks to this, Taiwan, which was a laggard in rolling out 4G, is now in the world's top 3 positions in terms of real-world download speeds.

The company is also using digital documents and signatures (although it is still a legal requirement to print certain documents).

While Ericsson has implemented a mobile tool to record working hours, the speaker expressed the hope that Taiwan's strict attendance record rules could be relaxed, noting that it is unsuited to work done by Ericsson's employees, many of which need to spend time with customers or in the field, not in the office.

As to how employees are adapting, the speaker said that the majority of employees want to work 2-3 days a week from home even after the pandemic, indicating that a hybrid work model will become permanent for Ericsson. Reasons cited for this preference are less commuting time and being able to spend more time with family, among others. As to efficiency, according to Ericsson's survey, 63% of employees reported no change in efficiency from WFH and 31% actually reported an improvement in efficiency and only 6% reported a drop in efficiency. This indicates that for certain jobs and based on age and culture, there will still be a need or preference for some staff to work in the office. Another issue that needs to be addressed is stress and work-life balance. When people also live in their home offices, they need ways to separate work from leisure time. The best option is to have a separate physical space for work (wherever possible) and to have enforced downtime from work.

The speaker went on to make some predictions about the future of work, noting that the physical office is an ever-evolving concept. In the near future, it is predicted that the hybrid office is likely to become the new normal while digitalisation and automation will eventually lead to the dematerialised office of the future, where work is an activity that can be performed anywhere, and the office is not a destination.

In her presentation, Lynn Chen spoke about some of the tax issues that have arisen during the pandemic. She began by making the point that while some companies have begun to successfully use digital signatures on documents, Taiwan still requires the use of chops or stamps (sometimes multiple versions) and there have so far not been any moves to create digital versions of these, which means that companies still have to print and stamp physical documents. The speaker went on to share examples of how the pandemic has affected the tax status of persons and corporations.

In the first example, a German national was hired by a Taiwanese company. She returned home for holidays and had planned to return to Taiwan but could not do so for several months owing to travel restrictions. While she had stayed in Taiwan for more than 300 days in 2019 but fewer than 183 days in 2020, her status changed from a Taiwan tax resident in 2019 to a non-Taiwan tax resident in 2020. As a Taiwan tax resident, withholding tax (WHT) is only 5% but as a non-tax resident it rises to 18%. Her employer had to further withhold 13% (ie 18%-5%) WHT from her monthly salary to pay to the national treasury and file the necessary documentation. Failure to do so would incur interest payments and penalties. To avoid falling foul of requirements companies are advised to keep track of expatriates' overseas travel plans and the duration of stay outside of Taiwan, identify the change of tax resident status of employees, complete relevant WHT amendment procedures, and review the compliance procedure by the end of every taxable year to avoid penalties.

Another implication for the German national is that, as a tax resident she was eligible to claim standard/itemized deductions and exemption items, according to the progressive income tax rates (which range from 5-40%) and is also subject to alternative minimum tax (AMT). However, while she was not in Taiwan, the salary she derived during this period was still viewed as Taiwan Sourced Income (TSI) and taxable, but she may not claim standard/itemized deductions for the time she was not in Taiwan.

In another example, an employee of a Dutch firm came to Taiwan three times for short periods to complete contractual work. In the first stint 2019, he had stayed less than 90 days and because his salary was paid overseas and not regarded as TSI, he did not need to pay tax. In the second stint, he stayed for longer than 90 days but fewer than 183 days. For this period, he needed to file a personal income tax return for his TSI at a flat rate of 18% of his salary and was not subject to exemptions, deductions, and AMT. However, in the next stint, when he was forced to remain in Taiwan for over 183 days because of travel restrictions, he was treated as a Taiwan tax resident and needed to file a tax return for his TSI, subject to the 5-40% progressive rates, but was also eligible for exemptions and deductions and subject to AMT. He was also subject to double taxation in his home country. Fortunately, Taiwan a tax treaty with The Netherlands, which provides a mechanism to resolve double taxation issues, but this would require filing the correct documents with tax authorities in both countries, which would require the employee to ask someone to do it on his behalf in the country where he is not located.

How have tax authorities responded to Covid-19? They have stated that the determination of tax residency of individuals should not be affected by temporary Covid-19 measures, such as international travel restrictions, border closure and quarantine. From a domestic tax rule perspective, certain days can be excluded from calculation of tax, quarantine periods can be excluded when determining an individual's tax residence status, although this will be determined on case-by-case basis. According to Chen, the tax authority's attitude toward this issue remains open and officials appear to be willing to adopt more flexible measures for this exceptional time period.

As for the implications on corporate income tax, under Taiwan income tax rules, foreign companies are subject to Taiwan income tax if deriving TSI from services carried out or completed in Taiwan, the services require the behaviours being carried out within and outside of Taiwan, or the services are carried out outside of Taiwan but require the participation and assistance from Taiwan. Compliance depends on whether the company has a permanent establishment (PE) in Taiwan. For the business profit under treaty, only in cases where a foreign company carries on its business through its PE in Taiwan will it be subject to corporate income tax on the TSI attributable to that PE. In other words, foreign companies without PEs could apply to the Taiwan tax authority for approval for business profits exemption under treaty. However, if the company provides services to a Taiwan entity, through personnel engaged by the company in Taiwan for over 183 days within any 12-month period it will be considered as having a service PE in Taiwan and therefore normally subject to corporate income tax.

So far authorities in Taiwan have expressed an openness to exclude impacts resulting from the pandemic and may determine PE from a flexible perspective if the applicant provides reasonable supporting documents. However, to date there is no precedent. Foreign companies should be mindful of how the PE is interpreted in these exceptional times.

The speaker concluded that when WFA becomes a global trend, individuals and companies will have to pay close attention to how tax authorities respond. It is not clear yet whether the home office will be viewed as a fixed place of business in another jurisdiction for the company or whether the employee in other countries habitually concludes that the contract creates an agency PE for the company.