At the time of our privatization, our then existing defined benefit pension obligations were settled in full. After completion  of our privatization, our continuing employees were deemed to have commenced employment as of the date our privatization  was completed for seniority purposes under our pension plans in effect after privatization. Under applicable Republic of China  regulations, upon our privatization, the Ministry of Transportation and Communications assumed the obligation to make annuity  payments to our employees who retired before our privatization.  In May 2009, the Legislative Yuan passed an amendment to Article 5 of the Income Tax Law, which reduces the income  tax rate of profit-seeking enterprises from 25% to 20% effective in 2010. Furthermore, in May 2010, the Legislative Yuan passed  the amendment of Article 5 of the Income Tax Law, which reduced the income tax rate of profit-seeking enterprises from 20% to  17%, effective on January 1, 2010. We benefit from tax incentives generally available to technology companies in the Republic of  China, including tax credits of up to 30% of the amount of some of our research and development, automation and employee training  expenditures in accordance with the Statute for Upgrading Industries. We also qualify for tax benefits at a rate of 5% to 15% of our  investment amount for qualified equipment and technology. However, due to the expiration of the Statute for Upgrading Industries at  the end of 2009, we will no longer receive tax credits for new investments in automation, employee training expenditures incurred,  and equipment and technology purchased after January 2010. In addition, tax credit rate for research and development expenditures  incurred after January 1, 2010 has been reduced to 15% from 30%, under the Statute for Innovating Industries enacted on May 12,  2010. As a result, though our effective tax rate was 22.3%, 15.8% and 15.2% in 2009, 2010 and 2011, respectively, the smaller scope  of tax credits and lower tax credit rate will reduce the tax credits amount that we could benefit from in the future. Therefore, we  expect that our effective tax rate in the future will not be lower compared to that of 2011.  In 1997, the Income Tax Law of the Republic of China was amended to integrate corporate income tax and stockholder  dividend tax to eliminate the double taxation effect for resident stockholders of Taiwan companies. Under the amendment, all retained  earnings generated from January 1, 1998 and not distributed to stockholders as dividends in the following year are assessed with a  10% retained earnings tax. See “Item 10. Additional Information—E. Taxation—Republic of China Taxation—Dividends.” This has  not had an impact on our financial results of operations because of our high dividend payout policy.  Summarized below are our accounting policies that we believe are both important to the portrayal of our financial results and  involve the need for management to make estimates about the effect of matters that are uncertain in nature. Actual results may differ  from these estimates, judgments and assumptions. Certain accounting policies are particularly critical because of their significance  to our reported financial results and the possibility that future events may differ significantly from the conditions and assumptions  underlying the estimates used and judgments made by our management in preparing our financial statements. The following  discussion should be read in conjunction with the consolidated financial statements and related notes, which are included in this  annual report.  We recognize revenues when we have persuasive evidence of an arrangement, the goods have been delivered or the services  have been rendered to the customer, the sales price is fixed or determinable and collectability is reasonably assured. We measure  revenues at the fair value of the consideration received or receivable and represents amounts agreed between us and the customers for  goods sold in the normal course of business, net of sales discounts and volume rebates. The costs of providing services are recognized  as incurred.  Usage revenues from fixed-line services (including local, domestic long distance and international long distance), cellular  services, internet and data services and interconnection and call transfer fees from other telecommunications companies and carriers  70 P AR T I Taxation Critical Accounting Policies  Revenue Recognition 