Taiwan Good Co.

1127th Commissioners' Meeting (2013)

Case:

Multilevel sales business Taiwan Good Co. violated the Fair Trade Law by deducting bonus without justification when participants returned products upon contract termination

Key Word(s):

Multilevel marketing, withdrawal and return of products

Reference:

Fair Trade Commission Decision of June 5, 2013 (the 1127th Commissioners' meeting); Disposition Kung Ch'u Tzu No.102080

Industry:

Direct Selling Establishments (4872)

Relevant Law(s):

Article 23-2(2) and Article 23-4 of the Fair Trade Law and Article 5(1) of the Supervisory Regulations Governing Multilevel Sales

Summary:

The FTC received a complaint from an individual stating that he had joined Taiwan Good Co. on June 26, 2012 through the introduction of a friend, signed the participation application, and paid NT$52,500 (including NT$2,500 for tax) according to the regulation set forth in Incentive Scheme of Taiwan Good Co. However, the situation began to appear different from what he had expected and therefore he informed Taiwan Good Co. of his decision to terminate the contract in November 2012. The company deducted NT$24,000 for his bonuses and his up-line's recommendation bonuses, and NT$2,500 for tax. In the end, he only retrieved NT$26,000 from Taiwan Good Co. and thought the conduct of Taiwan Good Co. was in violation of the Fair Trade law.

Grounds for disposition:

(1) According to the Incentive Scheme of Taiwan Good Co.", a "Profit 2" status individual who introduced or helped a person (or company) to become an "introducer" in another county/city would be rewarded NT$15,000, whereas an individual introducing or helping a person (or company) to become a "level 1" would be rewarded NT$6,000 and a "level 1" individual helping a person (or company) to become a "level 2" would also be rewarded NT$6,000 while the "introducer" would be rewarded NT$3,000. Another finding indicated that a "Profit 1" status distributor could recruit 1,000 to 1,500 subscribers in his or her jurisdiction. Each subscriber paid NT$6,000 a year and the distributor could get NT$200 and the introducer could get NT$700. Their up-line "level 1" and its up-line (level 2) could get NT$50 each. By implementing the above Incentive Scheme, Taiwan Good Co. met the definition of a multilevel sales business set forth in Article 8 of the Fair Trade Law.

(2) According to the Incentive Scheme of Taiwan Good Co., parties intending to become a participant had to pay NT$52,500 (including NT$2,500 for tax). When participants terminated the contract, the company, depending on the situation, would deduct from the returnable amount the bonuses already given and a system management fee, whereas for those who had not turned in the invoices would also had the corresponding business tax and two other expenses subtracted. However, the fact revealed by the FTC investigation showed that the said bonuses also included those given to the withdrawer's upline and downlines. The system management fee was the cost of the set-top box that was supposed to be free of charge in the beginning, making the deduction not a statutorily required item. Moreover, as Taiwan Good Co. could have presented related data to the tax office to apply for return of the tax already paid for the returned products, it could not deduct the amount for business tax simply because a withdrawing participant did not turn in the corresponding purchase invoices.

(3) Taiwan Good Co. implemented the Incentive Scheme but failed to file with the FTC before starting its multilevel sales operations. In addition, it deducted justifiable amounts when participants withdrew and returned products. The above acts were respectively in violation of Article 23-2(2) of the Fair Trade Law and Article 5(1) of the Supervisory Regulations Governing Multilevel Sales enacted in accordance with Article 23-4 of the same law. The FTC imposed an administrative fine of NT$100,000 for its violation of Article 23-2(2) of the Fair Trade Law and ordered the company to cease its unlawful act and also imposed on it an administrative of NT$50,000 for its violation of Article 5(1) of the Supervisory Regulations Governing Multilevel Sales. The fines totaled to NT$150,000 (Taiwan Good Co. stopped its multilevel sales business and the FTC therefore did not order it to file its multilevel sales operations with the FTC).

Appendix:
Taiwan Good Co.'s Uniform Invoice Number: 53548035

Summarized by Huang, Li-Ming; Supervised by Lai, Mei-Hua

! : For information of translation, click here

(1)	According to the Incentive Scheme of Taiwan Good Co.", a "Profit 2" status individual who introduced or helped a person (or company) to become an "introducer" in another county/city would be rewarded NT$15,000, whereas an individual introducing or helping a person (or company) to become a "level 1" would be rewarded NT$6,000 and a "level 1" individual helping a person (or company) to become a "level 2" would also be rewarded NT$6,000 while the "introducer" would be rewarded NT$3,000. Another finding indicated that a "Profit 1" status distributor could recruit 1,000 to 1,500 subscribers in his or her jurisdiction. Each subscriber paid NT$6,000 a year and the distributor could get NT$200 and the introducer could get NT$700. Their up-line "level 1" and its up-line (level 2) could get NT$50 each. By implementing the above Incentive Scheme, Taiwan Good Co. met the definition of a multilevel sales business set forth in Article 8 of the Fair Trade Law.
(2)	According to the Incentive Scheme of Taiwan Good Co., parties intending to become a participant had to pay NT$52,500 (including NT$2,500 for tax). When participants terminated the contract, the company, depending on the situation, would deduct from the returnable amount the bonuses already given and a system management fee, whereas for those who had not turned in the invoices would also had the corresponding business tax and two other expenses subtracted. However, the fact revealed by the FTC investigation showed that the said bonuses also included those given to the withdrawer's upline and downlines. The system management fee was the cost of the set-top box that was supposed to be free of charge in the beginning, making the deduction not a statutorily required item. Moreover, as Taiwan Good Co. could have presented related data to the tax office to apply for return of the tax already paid for the returned products, it could not deduct the amount for business tax simply because a withdrawing participant did not turn in the corresponding purchase invoices.
(3)	Taiwan Good Co. implemented the Incentive Scheme but failed to file with the FTC before starting its multilevel sales operations. In addition, it deducted justifiable amounts when participants withdrew and returned products. The above acts were respectively in violation of Article 23-2(2) of the Fair Trade Law and Article 5(1) of the Supervisory Regulations Governing Multilevel Sales enacted in accordance with Article 23-4 of the same law. The FTC imposed an administrative fine of NT$100,000 for its violation of Article 23-2(2) of the Fair Trade Law and ordered the company to cease its unlawful act and also imposed on it an administrative of NT$50,000 for its violation of Article 5(1) of the Supervisory Regulations Governing Multilevel Sales. The fines totaled to NT$150,000 (Taiwan Good Co. stopped its multilevel sales business and the FTC therefore did not order it to file its multilevel sales operations with the FTC).