Corporate Governance

Tax Strategy

Issue Date:2022/06/09

Tax Policies & Governance

Chunghwa Telecom (CHT) attaches importance to tax liability and commits itself to being an honest taxpayer. Quality tax compliance is our core value. The tax policy has enacted with Chunghwa Telecom. We implement the arm's length principle. Related party transactions are conducted in line with the pertaining regulations of transfer pricing. Also, use of tax haven or tax planning for the purpose of tax evasion are avoided for a better management of the tax operation of CHT and the subsidiaries thereof. In addition, CHT supports the government in promoting major operational activities like innovative R&D activities and smart technology.

Chunghwa Telecom puts tax management into practice and has established internal tax management mechanism, hiring professional consultants to provide timely information on changes in tax laws and regulations, so as to maintain an absolute tax compliance. Under the leadership of the Chairperson and CEO of Chunghwa Telecom, major decisions concerning compliance with tax laws and regulations by Chunghwa Telecom are made pursuant to the resolutions of the Board of Directors.

Supervised by the Board of Directors and with efforts of all employees, Chunghwa Telecom enjoys decent fruits of operation from year to year. In 2021, the taxes paid by the Headquarters of Chunghwa Telecom to the Government of Republic of China amounts to NT$15,681 million. The variety of taxes paid by Chunghwa Telecom have contributed much to the support to the government’s finance and the elevation of the people’s well-being, including the income taxes, business tax, taxes arising from dividends and other withholding taxes, property tax, and others. The income taxes include mainly Profit-seeking Enterprise Income Tax and foreign tax credit; property tax encompasses the land value tax and house tax; others involve stamp tax and environmental taxes. Environmental taxes are taxes and expenses incurred from environmental impacts, including fuel tax and waste disposal fee, levied for the government to use on earmarked purpose of environment improvement for a better environmental protection.

 
Constituent Entities and Main Business Activities of Chunghwa Telecom across Tax Jurisdictions in 2021
Tax Jurisdiction Constituent Entities Resident in the Tax Jurisdiction Main Business Activity(ies)
Tax Jurisdiction Constituent Entities Resident in the Tax Jurisdiction Main Business Activity(ies)
Research and Development Holding or Managing intellectual property Purchasing or Procurement Manufacturing or Production Sales, Marketing or Distribution Administrative, Management or Support Services Provision of Services to Unrelated Parties Internal Group Finance Regulated Financial Services Insurance Holding Shares or Other Equity Instruments Dormant Other
TW Chunghwa Telecom Co., Ltd.
TW Chief Telecom Inc.
TW Chunghwa Leading Photonics Tech Co., Ltd.
TW Chunghwa System Integration Co., Ltd.
TW Light Era Development Co., Ltd.
TW Spring House Entertainment Tech. Inc.
TW Chunghwa Investment Co., Ltd.
TW Honghwa International Co., Ltd.
TW Smartfun Digital Co., Ltd.
TW CHYP Multimedia Marketing & Communications Co., Ltd.
TW Senao International Co., Ltd.
TW Chunghwa Sochamp Technology Inc.
TW CHT Security Co., Ltd.
TW Unigate Telecom Inc.
TW Chunghwa Precision Test Tech. Co., Ltd.
TW Aval Technologies Co., Ltd.
TW Wiin Technologies Co., Ltd.
TW Youth Co., Ltd.
TW SENYOUNG Insurance Agent Co., Ltd.
TW Senaolife Insurance Agent Co., Ltd.
TW Youyi Co., Ltd.
TW ISPOT Co., Ltd.
TW International Integrated Systems, Inc.
TW Unitronics Technology Corp.
HK Donghwa Telecom Co., Ltd.
HK Senao International HK Limited
HK Chunghwa Hsingta Co., Ltd.
HK International Integrated Systems (Hong Kong) Limited
CN Shanghai Chief Telecom Co., Ltd.
CN Shanghai Taihua Electronic Technology Limited
CN Senao International Trading (Shanghai) Co., Ltd.
CN Chunghwa Telecom (China) Co., Ltd.
CN Su Zhou Precision Test Tech. Ltd.
CN International Integrated Systems Inc. (Shanghai)
AS Chief International Corp.
AS Chunghwa Precision Test Tech. International, Ltd.
AS Senao International (Samoa) Holding Ltd.
AS Infoexplorer International Co., Ltd.
US Chunghwa Precision Test Tech. USA Corporation
US Chunghwa Telecom Global, Inc.
SG Chunghwa Telecom Singapore Pte., Ltd.
JP Chunghwa Telecom Japan Co., Ltd.
JP CHPT Japan Co., Ltd.
VN Chunghwa Telecom Vietnam Co., Ltd.
TH Chunghwa Telecom (Thailand) Co., Ltd.
VG Prime Asia Investments Group Ltd.
MU IISI Investment Co., Ltd.
MU Leading Tech Co., Ltd.
MU Leading Systems Co., Ltd.

Tax Disclosure

Over 95% of the revenue of Chunghwa Telecom comes from its operation in Taiwan while 99% of the paid income tax is to the Government of the Republic of China. The paid tax incurred from the operation of Chunghwa Telecom has a direct, positive influence on the support to the local government’s finance as well as the well-being of the people.

The income, pre-tax income, income tax expense, income tax paid, and number of employees of Chunghwa Telecom in the respective tax jurisdictions in 2021 are as follows (subject to the 2021 Country-by-Country Report):

Unit: NT$ Million, Person

Tax Jurisdiction Revenue Profit (Loss) before tax Income tax accrued (current year) Income tax paid Number of employees
TAIWAN 234,601 47,943 8,326 8,101 30,001-33,000
CHINA 308 9 5 6 0-100
HONG KONG 1,131 -43 - - 0-100
AMERICAN SAMOA 27 11 - - 0-100
UNITED STATES 630 100 25 30 0-100
SINGAPORE 1,589 198 9 12 0-100
JAPAN 191 35 14 6 0-100
VIETNAM 39 -1 - - 0-100
THAILAND 120 4 - - 0-100
VIRGIN ISLANDS, BRITISH - -5 - - 0-100
MAURITIUS 3 -1 - - 0-100
 

The average effective tax rate for the consolidated income taxes of Chunghwa Telecom in 2020 and 2021 is 19.11%. The average effective rate and the actual tax paid are lower than that of industries worldwide since over 95% of Chunghwa Telecom’s revenue streams come from Taiwan and that the statutory rate of Taiwan is 20%. The cause of the difference lies in Article 42 of Income Tax Act, “the dividends or earnings received by a profit-seeking enterprise organized as a company, a cooperative, or other juristic person from its investment in another domestic profit-seeking enterprise shall not be included in its taxable income”. It also benefits from the tax credits the Headquarters obtained for the expenditures specified in the Statute for Industrial Innovation in line with the government’s policies for industrial innovation, industrial environment improvement, and industrial competitiveness elevation.

Unit: million NT$ Million

Item 2020 2021 Average
Earning Before Tax 42,831 46,067
Income Tax Expense 8,125 8,872
Effective Tax Rate 18.97% 19.05% 19.11%
Income Tax Paid 7,852 8,155
Cash Tax Rate 18.33% 17.70% 18.02%

Internal Audit

Internal audit is the core of a company's internal control systems and corporate governance. In an effort to improve the quality of internal audit and to ensure that the internal auditing department is capable of obeying the rules governing internal audit practices and defined internal audit operational standards, we have formulated the sound internal audit regulations and rules as below:
Internal audit charter of Chunghwa Telecom Co., Ltd.: clearly define to observe international standards for the professional practice of internal auditing while conducting audits, and specify the internal audit organization and duties, qualifying requirements for internal auditors, professional ethics and professionalism, etc.
Internal audit implementation rules of Chunghwa Telecom Co., Ltd.: specify internal auditors’ normative duties and matters for attention while conducting audits, making internal auditing plans, executing internal auditing operation, disposing internal auditing results, etc.
Internal audit operational manual of Chunghwa Telecom Co., Ltd.: including the detailed procedures and content of internal auditing operation, various application forms, and working methods, as the reference while auditors conducting their audits.
Moreover, we have established “the management information system of internal audit”, which includes annual audit plan, auditing jobs assignment, auditing notification, the data to prepare, auditing inquiry form and inquiry form reply, audit working papers, audit reports, auditing follow-up form and follow-up form reply, auditing follow-up report, the implementation of annual audit plan, etc. The system also possesses a number of statistical analysis functions.
We have an internal audit unit that reports directly to the board of directors. The audit unit conducts internal audits strictly in accordance with policies in the utmost objectivity. It assists the board of directors and managers by constantly reviewing the effectiveness of internal control systems and operating efficiency.

 

The Highest Moral Standard

We have set up the “Code of Ethics of Chunghwa Telecom Co Ltd,” “Ethical Corporate Management Best Practice Principle,” and “Procedures for Ethical Management and Guidelines for Conduct.” These are formulated as a basic ethical guideline to ensure that all employees engage in all activities with the highest standard, including no discrimination, no corruption and bribery, no anti-trust/anti-competitive practices, and whistleblowing system. In addition to these codes being included in the training program for new hires, all employees are required to log into the web, review the material and take a test annually. A hotline was set to encourage employees to voice opinions safely and confidentially. All employees participated in the test in 2020 except for those who were not available for a legitimate reason at the time of the test.
There was a total of 4 cases associated with violation of the codes of conduct in 2020. All cases were investigated and handled according to company internal policies and principles, and taught as case studies to strengthen employee esteem for the rules, discipline, corporate image, and shareholders’ interests. We have passed and obtained the CoC from SGS Taiwan, which verifies the effectiveness of the implementation and reporting mechanism of CoC system in Chunghwa Telecom.

Description of conducts that violate honesty and ethics and ignore protection of corporate assets: