Atlas Insights: PRC changes to Company Law and other updates – May 2024
China – PRC Changes to Company Law
The Standing Committee of the National People’s Congress of the People's Republic of China (PRC) released amendments to the Company Law on 29 December 2023. These amendments bring significant changes to corporate governance and management duties, particularly impacting employment management. This will be effective from 1 July 2024.
The new Company Law introduces a requirement for companies to establish a democratic management “system” primarily through the Employee Representative Congress. Though this has been mandated in the past, this provision has been overlooked in practice.
Now, companies with at least 300 employees must include employee representative(s) on the board of directors, unless the company’s board of supervisors already includes employee representative(s). Under the existing Company Law, this requirement only applies to companies with state-owned interests.
The new Company Law specifies that an employee representative on the board of directors can serve as a member of the audit committee, which, constituted by directors, is a novel mechanism introduced by the new Company Law as an alternative to the board of supervisors or individual supervisor(s). This signifies that an employee representative can exercise their supervisory and auditing rights by actively participating in audit processes.
The new Company Law also introduces a new provision that directors or senior management will be jointly liable with the company if they cause damage to others due to intentional acts or gross negligence in the performance of their duties. This implies that directors and senior management are now subject to a heightened level of personal accountability. They are not only responsible for the company’s losses due to their misconduct, but also for the damages caused to third parties.
South Korea – Adopts Global Minimum Tax
Earlier this year, South Korea published new regulations in the Presidential Decrees to the International Tax Coordination Law containing detailed implementation guidance in regards to Pillar 2 of the Organisation for Economic Co-operation and Development's (OECD) Global Tax Deal. These regulations have been effective since January 1, 2024.
Agreed upon by the OECD and the G20 Inclusive Framework, the “global minimum tax rule” aims to ensure that companies pay at least 15% on corporate income, regardless of where they operate. The initiative aligns with international efforts to tackle tax avoidance by major corporations, as they often seek refuge in low-tax jurisdictions.
Over the past 10 years, the OECD has led negotiations concerning the taxation of cross-border digital services, resulting in a two-pillar tax plan. The first pillar addresses the taxation of digital services across borders, while the second pillar focuses on establishing a minimum corporate tax rate of 15%.
Under the minimum tax system, multinational companies making over EUR 750 million in annual sales are required to pay at least 15% in taxes on their profits in each country where they operate.
If the total tax paid by a company's subsidiaries in a country is less than 15%, the parent company must make up the difference.
Australia – Launches New Visa Programme for Pacific Island and Timor-Leste Nationals
From June 3, 2024, Pacific Island and Timor-Leste nationals will be able to register for Australia's new Pacific Engagement Visa (PEV) programme. The programme will enable up to 3,000 citizens of Pacific Island countries and Timor-Leste to migrate to Australia as permanent residents each year, providing new opportunities to live, work, and study in Australia. This new initiative seeks to foster cultural connections and boost economic ties.
Participating countries include Micronesia, Fiji, Nauru, Palau, Papua New Guinea, Solomon Islands, Timor-Leste, Tonga, Tuvalu, and Vanuatu.
The programme will use an online ballot to select participants, who can then apply for the visa to migrate to Australia as permanent residents each year. Applicants must secure a formal ongoing job offer in Australia and meet health and character requirements before being granted a visa.
Pacific and Timorese nationals participating in the programme will have access to a range of support and support services, including migrant settlement services, English language programs, public schools, healthcare, and financial support to encourage participation in study and training.
Current Affairs – UK Worker Protection Act 2023
On October 26, 2024, new legislation will come into force under the Worker Protection (Amendment of Equality Act 2010) Act 2023. This legislation introduces a new requirement for employers to proactively take “reasonable steps” to prevent sexual harassment of their employees in the course of their employment, not just by fellow employees but potentially also by third parties.
While the legislation outlines the need for "reasonable steps" to be taken, the specific measures are not explicitly defined. It's important to note that this obligation differs from the existing defense available to employers who have taken "all reasonable steps" to prevent harassment by their employees.
Breaching this new obligation alone will not result in legal action against an employer in and of itself. Additional liabilities will only arise if a Tribunal holds an employer liable for sexual harassment by its employees. In such cases, if the employer is also found to have breached the new duty (by failing to take reasonable steps to prevent the sexual harassment), the compensation awarded to the affected employee may be increased by up to 25%.
For example, if the compensation award was £20,000 the claimant may claim an additional 25% compensation of £5,000 meaning the employer would be liable to pay £25,000. The levels of compensation a victim of sexual assault is entitled to ranges from £1,000 to £44,000 depending on different factors i.e. what type of assault and how severe the emotional impact will be. Considering the lack of a cap on these compensation awards, the potential impact of this increase could be substantial.