Income Tax

12 Months Ended

Dec. 31, 2019

29.	INCOME TAX

Income tax expense recognized in profit or loss

Income tax expense consisted of the following:


	Years Ended December 31
	2017			2018			2019
	NT$			NT$			NT$
	(In Millions)			(In Millions)			(In Millions)
Current income tax expense
Current tax expense recognized in the current year	$	73,851.4		$	60,584.3		$	47,135.5
Income tax adjustments on prior years		(19,107.0	)		(21,753.0	)		(10,193.8	)
Other income tax adjustments		152.8			152.9			(41.5	)


		54,897.2			38,984.2			36,900.2

Deferred income tax expense (benefit)
Effect of tax rate changes		561.8			(1,474.8	)		—
The origination and reversal of temporary differences		(4,336.1	)		(3,072.5	)		(1,065.1	)

		(3,774.3	)		(4,547.3	)		(1,065.1	)


Income tax expense recognized in profit or loss	$	51,122.9		$	34,436.9		$	35,835.1

A reconciliation of income before income tax and income tax expense recognized in profit or loss was as follows:


	Years Ended December 31
	2017			2018			2019
	NT$			NT$			NT$
	(In Millions)			(In Millions)			(In Millions)
Income before tax	$	396,161.9		$	397,543.1		$	389,862.1

Income tax expense at the statutory rate	$	69,613.5		$	80,872.5		$	79,056.5
Tax effect of adjusting items:
Nondeductible (deductible) items in determining taxable income		(1,415.9	)		2,533.4			(4,183.5	)
Tax-exempt income		(16,901.1	)		(54,543.5	)		(39,808.1	)
Additional income tax under the Alternative Minimum Tax Act		—			21,455.9			10,367.9
Additional income tax on unappropriated earnings		28,183.5			16,294.5			7,628.1
Effect of tax rate changes on deferred income tax		561.8			(1,474.8	)		—
The origination and reversal of temporary differences		(4,336.1	)		(3,072.6	)		(1,065.1	)
Income tax credits		(5,628.6	)		(6,028.4	)		(5,925.4	)


		70,077.1			56,037.0			46,070.4
Income tax adjustments on prior years		(19,107.0	)		(21,753.0	)		(10,193.8	)
Other income tax adjustments		152.8			152.9			(41.5	)


Income tax expense recognized in profit or loss	$	51,122.9		$	34,436.9		$	35,835.1

For the year ended December 31, 2017, the Company applied a tax rate of 17% for entities subject to the R.O.C. Income Tax Law. In 2018, the Income Tax Law in the R.O.C. was amended and, starting from 2018, the corporate income tax rate was adjusted from 17% to 20%. In addition, the tax rate for 2018 unappropriated earnings was reduced from 10% to 5%.

Under the amendment to the R.O.C Statute of Industrial Innovation in 2019, the amounts of unappropriated earnings in 2018 and thereafter used for building or purchasing specific assets or technologies can qualify for deduction when computing the income tax on unappropriated earnings.

For other jurisdictions, taxes are calculated using the applicable tax rate for each individual jurisdiction.

Income tax expense recognized in other comprehensive income


	Years Ended December 31
	2017			2018		2019
	NT$			NT$		NT$
	(In Millions)			(In Millions)		(In Millions)
Deferred income tax benefit (expense)
Related to remeasurement of defined benefit obligation	$	30.6		$	103.3	$	(30.4	)
Related to unrealized gain/loss on investments in equity instruments at FVTOCI		—			91.8		9.4
Related to gain/loss on cash flow hedges		(0.6	)		0.6		—
Related to unrealized gain/loss on available-for-sale financial assets		(2.9	)		—		—


	$	27.1		$	195.7	$	(21.0	)

Deferred income tax balance

The analysis of deferred income tax assets and liabilities was as follows:


	December 31, 2018			December 31, 2019
	NT$			NT$
	(In Millions)			(In Millions)
Deferred income tax assets
Temporary differences
Depreciation	$	11,839.2		$	13,547.2
Refund liability		2,594.0			2,150.4
Net defined benefit liability		1,084.9			1,016.3
Unrealized loss on inventories		751.0			469.4
Deferred compensation cost		271.7			323.1
Investments in equity instruments at FVTOCI		56.2			65.7
Others		209.4			356.3


	$	16,806.4		$	17,928.4

Deferred income tax liabilities
Temporary differences
Unrealized exchange gains	$	(61.7	)	$	(333.6	)
Others		(171.6	)		(10.8	)


	$	(233.3	)	$	(344.4	)


	Year Ended December 31, 2017
				Recognized in
	Balance, Beginning of Year			Profit or Loss			Other Comprehensive Income			Effect of Disposal of Subsidiary			Effect of Exchange Rate Changes			Balance, End of Year
	NT$			NT$			NT$			NT$			NT$			NT$
	(In Millions)			(In Millions)			(In Millions)			(In Millions)			(In Millions)			(In Millions)
Deferred income tax assets
Temporary differences
Depreciation	$	4,244.2		$	4,207.2		$	—		$	—		$	(50.1	)	$	8,401.3
Provision for sales returns and allowance		1,512.1			130.0			—			—			(4.4	)		1,637.7
Net defined benefit liability		939.5			5.2			30.6			—			—			975.3
Unrealized loss on inventories		737.3			(105.1	)		—			—			(2.7	)		629.5
Deferred compensation cost		378.7			(83.1	)		—			—			(29.1	)		266.5
Others		445.1			(222.4	)		—			—			(27.5	)		195.2
Operating loss carryforward		14.5			—			—			(14.5	)		—			—


	$	8,271.4		$	3,931.8		$	30.6		$	(14.5	)	$	(113.8	)	$	12,105.5

Deferred income tax liabilities
Temporary differences
Unrealized exchange gains	$	(48.7	)	$	(120.8	)	$	—		$	—		$	—		$	(169.5	)
Available-for-sale financial assets		(92.5	)		—			(2.9	)		—			—			(95.4	)
Others		—			(36.7	)		(0.6	)		—			—			(37.3	)


	$	(141.2	)	$	(157.5	)	$	(3.5	)	$	—		$	—		$	(302.2	)


	Year Ended December 31, 2018
				Recognized in
	Balance, Beginning of Year			Profit or Loss			Other Comprehensive Income			Effect of Exchange Rate Changes		Balance, End of Year
	NT$			NT$			NT$			NT$		NT$
	(In Millions)			(In Millions)			(In Millions)			(In Millions)		(In Millions)
Deferred income tax assets
Temporary differences
Depreciation	$	8,401.3		$	3,430.4		$	—		$	7.5	$	11,839.2
Refund liability		1,637.7			955.0			—			1.3		2,594.0
Net defined benefit liability		975.3			6.3			103.3			—		1,084.9
Unrealized loss on inventories		629.5			120.5			—			1.0		751.0
Deferred compensation cost		266.5			(4.7	)		—			9.9		271.7
Investments in equity instruments at FVTOCI		—			—			56.2			—		56.2
Others		195.2			7.1			—			7.1		209.4


	$	12,105.5		$	4,514.6		$	159.5		$	26.8	$	16,806.4

Deferred income tax liabilities
Temporary differences
Unrealized exchange gains	$	(169.5	)	$	107.8		$	—		$	—	$	(61.7	)
Investments in equity instruments at FVTOCI		(95.4	)		—			95.4			—		—
Others		(37.3	)		(75.1	)		(59.2	)		—		(171.6	)


	$	(302.2	)	$	32.7		$	36.2		$	—	$	(233.3	)


	Year Ended December 31, 2019
				Recognized in
	Balance, Beginning of Year			Profit or Loss			Other Comprehensive Income			Effect of Exchange Rate Changes			Balance, End of Year
	NT$			NT$			NT$			NT$			NT$
	(In Millions)			(In Millions)			(In Millions)			(In Millions)			(In Millions)
Deferred income tax assets
Temporary differences
Depreciation	$	11,839.2		$	1,727.8		$	—		$	(19.8	)	$	13,547.2
Refund liability		2,594.0			(443.2	)		—			(0.4	)		2,150.4
Net defined benefit liability		1,084.9			(38.2	)		(30.4	)		—			1,016.3
Unrealized loss on inventories		751.0			(280.8	)		—			(0.8	)		469.4
Deferred compensation cost		271.7			59.4			—			(8.0	)		323.1
Investments in equity instruments at FVTOCI		56.2			0.1			9.4			—			65.7
Others		209.4			151.1			—			(4.2	)		356.3


	$	16,806.4		$	1,176.2		$	(21.0	)	$	(33.2	)	$	17,928.4

Deferred income tax liabilities
Temporary differences
Unrealized exchange gains	$	(61.7	)	$	(271.9	)	$	—		$	—		$	(333.6	)
Others		(171.6	)		160.8			—			—			(10.8	)


	$	(233.3	)	$	(111.1	)	$	—		$	—		$	(344.4	)

The deductible temporary differences for which no deferred income tax assets have been recognized

As of December 31, 2018 and 2019, the aggregate deductible temporary differences for which no deferred income tax assets have been recognized amounted to NT$20,060.9 million and NT$33,445.5 million, respectively.

Unused

tax-exemption

information

As of December 31, 2019, the profits generated from the following projects of TSMC are exempt from income tax for a five-year period:


		Tax-exemption Period
Construction and expansion of 2009 by TSMC		2018 to 2022

The information of unrecognized deferred income tax liabilities associated with investments

As of December 31, 2018 and 2019, the aggregate taxable temporary differences associated with investments in subsidiaries not recognized as deferred income tax liabilities amounted to NT$112,893.0 million and NT$131,085.7 million, respectively.

Income tax examination

The tax authorities have examined income tax returns of TSMC through 201

. All investment tax credit adjustments assessed by the tax authorities have been recognized accordingly.