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Gov't to appeal a case in favor of China's Taobao

by June 29, 2016 General

By John Liu, The China Post
June 30, 2016, 12:30 am TWN

TAIPEI, Taiwan — The Economics Ministry has said it will appeal a high court ruling, saying that China-based Taobao (淘寶網) is an illegitimate foreign investment in Taiwan.

The ministry claimed that while Taobao was opened in the name of a Hong Kong-based company, it was a de facto Chinese investment. The ministry levied a NT$240,000 fine and ordered the company’s withdrawal within six months.

The Taipei High Administrative Court, which handled the case, said that regulations in Taiwan don’t say that a foreign investment, once turned into a Chinese investment, needs to apply to the Economics Ministry for approval, and as such, there was no violation.

The Economics Ministry believes Taobao’s Taiwan office is actually controlled by the Alibaba Group, which in 2010 was categorized as a Chinese investment based on the “Clauses governing Chinese mainlanders’ investment in Taiwan.”

Since the company failed to apply for a status change, it was penalized accordingly, the ministry said.

The Taobao office in Taiwan was established as a foreign investment approved by the Economics Ministry. But after Alibaba went public in 2014, Taobao became a company that the ministry claimed to be Chinese investor-owned, instead of a foreign investment.

In its defense, Taobao said Alibaba’s two largest shareholders are Softbank and Yahoo and that Chinese capital makes up less than 30 percent of company stakes. Chinese investors do not have a controlling stake over Taobao, and the Economics Ministry ought not to levy a penalty based on its “imagination” of Chinese control, Taobao said.

Economics Ministry Investment Commission director Chu Ping (朱萍), claimed otherwise. Although Alibaba chairman Jack Ma has less than a 30-percent stake in Taobao, his agreement with Softbank and Yahoo specifies company voting rights, Chu said.

Local law also states that such a scenario qualifies as a real controlling stake, and the ministry will most certainly appeal, Chu said.

Different Verdicts by

Different Judges

A similar legal battle has been fought before in Taiwan, with the government getting the upper hand. To evade its Chinese company status, Alibaba filed for a Taiwan branch application in 2008 in the name of a Singapore-based company.

The Economics Ministry filed a lawsuit based on the same grounds that the Alibaba office in Taiwan was an illegitimate Chinese-owned company that was not properly filed.

In April, the Taipei High Administrative Court ruled in favor of the government, saying that Jack Ma and his three partners have overriding power in the Alibaba board, and therefore defined the company as Chinese capital-controlled.

Alibaba’s company charters state that Ma and his three partners have the right to decide five of the nine company board seats, and as such, have complete control over the company. It can thus be categorized as a Chinese company, the court said.