32.	INCOME TAX

Income tax recognized in profit or loss

The major components of income tax expense were as follows:

	Year Ended December 31
	2015			2016			2017
	NT$			NT$			NT$
	(In Millions)
Current tax
Current tax expenses recognized for the year	$	8,570		$	6,736		$	7,996
Tax on unappropriated earnings		821			(346	)		(60	)
Income tax adjustments on prior years		(83	)		(22	)		(2	)
Others		15			15			10
		9,323			6,383			7,944
Deferred tax
Deferred tax expense recognized for the year		(222	)		1,404			(101	)
Income tax adjustments on prior years		—			—			6
		(222	)		1,404			(95	)

Income tax recognized in profit or loss	$	9,101		$	7,787		$	7,849

Reconciliation of accounting profit and income tax expense was as follows:

	Year Ended December 31
	2015			2016			2017
	NT$			NT$			NT$
	(In Millions)
Income before income tax	$	51,953		$	49,413		$	48,009
Income tax expense calculated at the statutory rate (17%)	$	8,832		$	8,400		$	8,162
Nondeductible revenues and expenses in determining taxable income		28			5			34
Imputed income on tax		—			—			—
Unrecognized deductible temporary differences		11			(9	)		(1	)
Unrecognized loss carryforwards		83			12			10
Tax-exempt income		(183	)		(25	)		(87	)
Income tax on unappropriated earnings		821			(346	)		(60	)
Investment credits		(329	)		(234	)		(212	)
Effect of different tax rates of group entities operating in other jurisdictions		(94	)		(8	)		(2	)
Income tax adjustments on prior years		(83	)		(22	)		4
Others		15			14			1
Income tax expense recognized in profit or loss	$	9,101		$	7,787		$	7,849

The applicable tax rate used above is the corporate tax rate of 17% payable by the entities subject to the Income Tax Act of the Republic of China, while the applicable tax rate used by subsidiaries in China is 25%. Tax rates used by other entities in the Company operating in other jurisdictions are based on the tax laws in those jurisdictions.

In February 2018, it was announced by the President that the Income Tax Act in the ROC was amended and starting from 2018, the corporate income tax rate will be adjusted from 17% to 20%. In addition, the tax rate applicable to 2018 unappropriated earnings will be reduced from 10% to 5%. Deferred tax assets and deferred tax liabilities recognized as at December 31, 2017 are expected to increase by $480 million and $236 million, respectively, as a result of the aforementioned tax rate changes in 2018.

Income tax expense (benefit) recognized in other comprehensive income

	Year Ended December 31
	2015			2016			2017
	NT$			NT$			NT$
				(In Millions)
Deferred tax
Unrealized gain or loss on available-for-sale financial assets	$	2		$	(2	)	$	(3	)
Remeasurement on defined benefit plan		(39	)		(347	)		(344	)
Total income tax benefit recognized in other comprehensive income	$	(37	)	$	(349	)	$	(347	)

Current tax assets and liabilities

	December 31
	2016		2017
	NT$		NT$
	(In Millions)
Current tax assets
Tax refund receivable (included in other current assets - other)	$	5	$	2
Current tax liabilities
Income tax payable	$	6,522	$	8,674

Deferred income tax assets and liabilities

The movements of deferred income tax assets and liabilities were as follows:

For the year ended December 31, 2015

	January 1, 2015		Recognized in Profit or Loss			Recognized in Other Comprehensive Income		From Business Combination		December 31, 2015
	NT$		NT$			NT$		NT$		NT$
	(In Millions)
Deferred Income Tax Assets
Temporary differences
Defined benefit obligation	$	1,096	$	71		$	39	$	—	$	1,206
Share of the profit of associates and joint ventures accounted for using equity method		277		48			—		—		325
Allowance for doubtful receivables over quota		114		55			—		—		169
Impairment loss on property, plant and equipment		32		12			—		—		44
Deferred revenue		156		(20	)		—		—		136
Valuation loss on inventory		41		(8	)		—		—		33
Estimated warranty liabilities		19		(1	)		—		—		18
Unrealized foreign exchange loss, net		—		18			—		—		18
Accrued award credits liabilities		28		(6	)		—		—		22
Property, plant and equipment		—		—			—		2		2
Others		34		6			—		—		40
		1,797		175			39		2		2,013
Loss carryforwards		29		17			—		2		48
	$	1,826	$	192		$	39	$	4	$	2,061

	January 1, 2015			Recognized in Profit or Loss			Recognized in Other Comprehensive Income			From Business Combination			December 31, 2015
	NT$			NT$			NT$			NT$			NT$
	(In Millions)
Deferred Income Tax Liabilities
Temporary differences
Defined benefit obligation	$	—		$	(1	)	$	—		$	—		$	(1	)
Land value incremental tax		(95	)		—			—			—			(95	)
Intangible assets		—			1			—			(44	)		(43	)
Deferred revenue for award credits		(5	)		3			—			—			(2	)
Valuation gain or loss on financial instruments, net		(3	)		—			(2	)		—			(5	)
Unrealized foreign exchange gain, net		(29	)		28			—			—			(1	)
Others		—			(1	)		—			—			(1	)
	$	(132	)	$	30		$	(2	)	$	(44	)	$	(148	)

For the year ended December 31, 2016

	January 1, 2016		Recognized in Profit or Loss			Recognized in Other Comprehensive Income		December 31, 2016
	NT$		NT$			NT$		NT$
	(In Millions)
Deferred Income Tax Assets
Temporary differences
Defined benefit obligation	$	1,206	$	(179	)	$	347	$	1,374
Share of profits of associates and joint ventures accounted for using equity method		325		5			—		330
Allowance for doubtful receivables over quota		169		61			—		230
Impairment loss on property, plant and equipment		44		78			—		122
Deferred revenue		136		(19	)		—		117
Valuation loss on inventory		33		(13	)		—		20
Estimated warranty liabilities		18		1			—		19
Unrealized foreign exchange loss, net		18		(18	)		—		—
Accrued award credits liabilities		22		(2	)		—		20
Property, plant and equipment		2		—			—		2
Others		40		(6	)		—		34
		2,013		(92	)		347		2,268
Loss carryforwards		48		6			—		54
	$	2,061	$	(86	)	$	347	$	2,322

	January 1, 2016			Recognized in Profit or Loss			Recognized in Other Comprehensive Income		December 31, 2016
	NT$			NT$			NT$		NT$
	(In Millions)
Deferred Income Tax Liabilities
Temporary differences
Defined benefit obligation	$	(1	)	$	(1,268	)	$	—	$	(1,269	)
Land value incremental tax		(95	)		—			—		(95	)
Intangible assets		(43	)		3			—		(40	)
Deferred revenue for award credits		(2	)		(44	)		—		(46	)
Valuation gain or loss on financial instruments, net		(5	)		—			2		(3	)
Unrealized foreign exchange gain, net		(1	)		(9	)		—		(10	)
Others		(1	)		—			—		(1	)
	$	(148	)	$	(1,318	)	$	2	$	(1,464	)

For the year ended December 31, 2017

	January 1, 2017		Recognized in Profit or Loss			Recognized in Other Comprehensive Income		December 31, 2017
	NT$		NT$			NT$		NT$
	(In Millions)
Deferred Income Tax Assets
Temporary differences
Defined benefit obligation	$	1,374	$	5		$	344	$	1,723
Share of profits of associates and joint ventures accounted for using equity method		330		1			—		331
Allowance for doubtful receivables over quota		230		59			—		289
Impairment loss on property, plant and equipment		122		(10	)		—		112
Deferred revenue		117		(11	)		—		106
Valuation loss on inventory		20		3			—		23
Estimated warranty liabilities		19		3			—		22
Unrealized foreign exchange loss, net		—		17			—		17
Accrued award credits liabilities		20		(5	)		—		15
Trade-in right		—		15			—		15
Property, plant and equipment		2		—			—		2
Others		34		(5	)		—		29
		2,268		72			344		2,684
Loss carryforwards		54		(8	)		—		46
	$	2,322	$	64		$	344	$	2,730

	January 1, 2017			Recognized in Profit or Loss			Recognized in Other Comprehensive Income		December 31, 2017
	NT$			NT$			NT$		NT$
	(In Millions)
Deferred Income Tax Liabilities
Temporary differences
Defined benefit obligation	$	(1,269	)	$	4		$	—	$	(1,265	)
Land value incremental tax		(95	)		—			—		(95	)
Intangible assets		(40	)		1			—		(39	)
Deferred revenue for award credits		(46	)		17			—		(29	)
Valuation gain or loss on financial instruments, net		(3	)		(1	)		3		(1	)
Unrealized foreign exchange gain, net		(10	)		10			—		—
Others		(1	)		—			—		(1	)
	$	(1,464	)	$	31		$	3	$	(1,430	)

Items for which no deferred income tax assets have been recognized

	December 31
	2016		2017
	NT$		NT$
	(In Millions)
Loss carryforwards
Expire in 2018	$	126	$	126
Expire in 2019		138		138
Expire in 2020		42		42
Expire in 2021		13		9
Expire in 2022		1		11
Expire in 2023		1		—
Expire in 2024		—		—
Expire in 2025		14		13
Expire in 2026		—		—
Expire in 2027		—		2
	$	335	$	341
Deductible temporary differences	$	3	$	2

Information about unused loss carryforwards

As of December 31, 2017, unused loss carryforwards was as follows:

Remaining Creditable Amount		Expiry Year
NT$ (In Millions)
$	126	2018
	138	2019
	45	2020
	20	2021
	12	2022
	1	2023
	4	2024
	28	2025
	10	2026
	3	2027
$	387

The related information under the Integrated Income Tax System was as follows:

Unappropriated earnings information

Chunghwa’s earnings generated prior to June 30, 1988 have been appropriated.

Imputation credit account

	December 31
	2016
	NT$
	(In Millions)
Balance of Imputation Credit Account (“ICA”)	$	7,691

The creditable ratio for distribution of earnings of 2016 was 20.48%. Effective from January 1, 2015, the creditable ratio for individual stockholders residing in the Republic of China is half of the original creditable ratio according to the revised Article 66-6 of the Income Tax Act of the ROC in June 2014. However, starting from January 1, 2018, the imputation tax system was abolished and imputation credit account is no longer applicable based on amended ROC Income Tax Act announced in February 2018.

Income tax examinations

Income tax returns of Chunghwa have been examined by the tax authorities through 2014 (except 2013). Income tax returns of SENAO, HHI, CHSI and CHPT have been examined by the tax authorities through 2015. Income tax returns of CHI, SFD, SHE, CHYP, LED, CHIEF, Unigate, CLPT, ISPOT, Youth, Youyi, Aval and CHST have been examined through 2016, and income tax returns of CEI’s 2015 current final reports on total business income to liquidation date and on income earned from liquidation have been examined by the tax authorities.