Franchising in Taiwan: Defining Responsibility for Complaints, Refunds and Head Office Advances

When an existing business moves from company-owned outlets to franchising, refunds that once needed only the owner's approval become questions of responsibility across separate businesses and outlets. Consumers see one brand, but head office and franchisees may be separate parties to a transaction. To build a franchise network based on mutual trust, establish rules for handling complaints and allocating costs before recruitment begins, rather than waiting for a problem and then asking franchisees to ‘support the brand’.

1. Identify the party to the transaction, then assign handling roles

Do not treat ‘who receives the complaint’, ‘who refunds the customer’ and ‘who ultimately bears the cost’ as the same question. Head office can handle complaints centrally without being the supplier of goods or services in every transaction. Equally, an outlet's responsibility for sales does not mean head office can ignore problems involving shared systems or brand advertising.

Before opening the business to franchisees, map out three scenarios based on how transactions actually work: payments collected directly by the outlet, payments collected through a head office platform, and payments collected through a third-party platform. For each, check the seller named on the order, who issues the invoice or receipt, where the money goes and who has authority to process refunds. Do not determine responsibility solely from the shop sign or payment screen.

Then draw up a responsibility matrix, specifying the following for each transaction type:

• Customer contact point: Who collects information, issues a case reference and responds to the customer.
• Investigation lead: Who checks the order, product condition and service records.
• Refund processor: Who can issue a refund through the original payment channel.
• Party bearing the cost: How the final allocation will be determined based on the cause and supporting evidence.

Internal divisions of responsibility cannot reduce legal obligations towards customers or other external parties. Consumer rights issues must still be handled under applicable provisions of Taiwan's Consumer Protection Act, Civil Code and other relevant legislation. Customers must not be required to resolve a dispute between head office and the franchisee first.

2. Turn refund authority into a practical decision table

Company-owned outlets may be used to asking the owner for approval, but franchisees need to know which decisions they can make themselves. Classify cases by risk, rather than value alone: general dissatisfaction with service, defective goods, duplicate charges, and cases involving personal safety or suspected systemic problems should follow different procedures.

For routine cases, outlets can be authorised in writing to provide replacements, exchanges or refunds within defined limits. Compensation commitments beyond those limits should require approval from a designated person. Safety-related cases should be escalated immediately, with the supply of affected products suspended where necessary. They must not wait until the month-end reconciliation.

Each procedure should specify, at a minimum, the response deadline after a complaint is received, the approver, the evidence required, the refund channel and cover arrangements when the responsible person is unavailable. Brands should set these deadlines according to their actual capabilities, rather than presenting internal service targets as universal legal requirements.

Also distinguish between ‘remedies required by law’ and ‘additional goodwill compensation offered by the brand’. For the latter, such as an extra complimentary item, approval authority and cost allocation should be defined in advance. Legally required remedies, however, must not be refused outright simply because an outlet has not obtained head office approval. Nor should every case be subject to a blanket ‘no refunds once goods leave the premises’ policy, which overlooks the different legal obligations that may arise from the transaction method and the specific dispute.

3. A refund paid upfront by head office does not automatically justify a deduction from the franchisee

A central customer service team may sometimes need to refund a consumer before investigating the cause. In such cases, record the payment as a ‘provisional advance’, rather than automatically treating it as evidence of a franchisee's breach of contract.

The advance payment record should include the order number, the customer's request, the basis for the refund, the approver, the amount and proof of payment. When notifying the franchisee, provide a summary they can check and a channel for raising objections. Any personal data shared should be limited to what is needed to handle the case.

Final responsibility can be classified by cause: an outlet's operational error, a head office system error, a supplier quality issue, or a problem caused jointly by both parties. Cases with no clear cause should remain under investigation, rather than all being charged to the franchisee. Even where a supplier is responsible, specify who will pursue recovery and how the payment will be treated until recovery is complete.

If head office intends to offset an advance against money payable to the franchisee, the contract should define the applicable conditions, notification procedure, supporting documents and dispute resolution process, and undergo legal review. Avoid overly broad clauses such as ‘head office may determine and deduct any loss at its sole discretion’. Reconciling disputed and undisputed amounts separately can also help preserve the day-to-day working relationship.

4. Disclose costs before recruitment, then test the process in company-owned outlets

Taiwan does regulate franchising. The Fair Trade Commission's Disposal Directions (Guidelines) on the Business Practices of Franchisors set out requirements for providing material franchise information. Related manifestly unfair conduct capable of affecting trading order is addressed under Article 25 of the Fair Trade Act. This is not a system for approving franchise contracts clause by clause.

If the brand requires franchisees to pay a fixed customer service fee or case-handling fee, or to bear the cost of specified compensation arrangements, these requirements should, according to their nature, be included in the disclosures on ongoing operating fees and restrictions within the franchise relationship. The guidelines require relevant material information to be provided ten days before entering into a franchise relationship or a preliminary franchise relationship, or within a period considered reasonable in the particular case or agreed by both parties. The franchisor must be able to prove that the information was provided. New payment obligations cannot simply be added to a customer service manual after the contract has been signed.

Before formally recruiting franchisees, test the process using real cases from company-owned outlets. Can frontline staff identify the party to the transaction, find the approver and obtain proof of the refund? Can the finance team complete the reconciliation? The contract should define rights, responsibilities and costs, while the operations manual should set out the practical steps. The two must be consistent.

Practical takeaway: Before opening the business to franchisees, prepare a complaints responsibility matrix, a refund authorisation table and an advance payment reconciliation record. Give customers a clear point of contact, and ensure franchisees understand why each refund was issued, who approved it and how its cost will be shared.