Hong Chi International Enterprise Co., Ltd. violates the Fair Trade Law by engaging in multi-level sales activities

Case:

Key Words:

multi-level sales enterprise, contract termination, value reduction fee

Reference:

Fair Trade Commission Decision of August 12, 2004 (the 666th Commissioners' Meeting); Disposition (93) Kung Ch'u Tzu No. 093077

Industry:

Direct Selling Establishments (4812)

Relevant Laws:

Article 23-2(2) and 23-3(2) of the Fair Trade Law

Summary:

This case originated from a complaint letter filed by the general public alleging that Hong Chi International Enterprise Co., Ltd (hereinafter called "Hong Chi") failed to comply with the Disposition (91) Kung Ch'u Tzu No. 091150 and improperly deducted organizational bonuses, upstream participant bonuses, value reduction fee New Taiwan Dollars (NT$) 250 per month, and business tax of NT$1,500 when the complainant processed contract termination and refund, in violation of the Fair Trade Law (FTL).
Findings of the Fair Trade Commission (FTC) after investigation:
1. In accordance with the Disposition Kung Ch'u Tzu No. 091150 issued by the FTC on September 24, 2002, Hong Chi had violated Article 23-3(2) of the FTL referring to the mutatis mutandis application of Article 23-2(2) for deducting upstream participant bonuses, and violated Article 17(1)(iv) of the Supervisory Regulations Governing Multi-level Sales pursuant to Article 23-4 of the FTL. However, after the FTC's disposition, Hong Chi failed to cease the aforesaid violations in accordance with the Disposition Kung Ch'u Tzu No. 091150, but continued to deduct the upstream participant bonuses and downstream bonuses from the refunds.
2. Moreover, Hong Chi failed to return the participant business tax of NT$1,500 when the participant terminated the contract termination and returned the goods. Based on the expert opinions provided by the Ministry of Finance requested by the FTC in writing, when a business operation sells goods or services to a non business operator, if the good sold is returned or if discount and allowances occur and the sales amount of the uniform invoice is already declared, the business operator may submit relevant information to apply for the deduction of output tax. Thus, the sales prices of goods and service sold by a multi-level sales enterprise shall include business tax and such sales prices shall be the "original purchase prices" set forth in Article 23-2(2) of the FTL. However, when the participant terminated the contract and requested for refunds, Hong Chi directly deducted the business tax NT$ 1,500 paid by the participant from the original purchase price instead of returning the 90% of the total NT$ 31,500 (the original purchase price NT$ 30,000 plus business tax NT$ 1,500) in violation of Article 23-3(2) of the FTL referring to the mutatis mutandis application of Article 23-4(2) of the FTL.
Grounds for disposition:
Hong Chi deducted from the refunds upstream participant bonuses and the bonus acquired from attracting downstream participants when the participant terminated the contract, and failed to cease its violation in accordance with the Disposition Kung Ch'u Tzu No. 091150, subject to the latter part of Article 42(2) and forepart of Article 41 of the FTL. In additional, Hong Chi failed to return 90% of the original purchase price to the participant when the participant terminated the contract, in violation of Article 23-3(2) of the FTL referring to the mutatis mutandis application of Article 23-2(2) of the FTL, subject to the forepart of Article 42 (2) of the FTL. After weighing the extent and duration of harm caused by its violations to the trading order, operational status, and the nature and types of the violations, the FTC imposed an administrative fine of NT$ 2,000,000 respectively for the aforesaid violations (total NT$ 4,000,000) and ordered Hong Chi to promptly cease the aforesaid violations.

Appendix:
Hong Chi International Enterprise Co., Ltd.'s Uniform Invoice Number: 97367685

Summarized by Ho, Yin-Ju; Supervised by Yeh, Tine-Fu

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