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INCOME TAXES | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The components of income tax for the years ended December 31, 2023, 2022 and 2021 are as follows:
| Year Ended December 31,
| 2023 |  | 2022 |  | 2021
| (In millions)
Income Tax: |  |  |  |  |
Current: |  |  |  |  |
U.S. | $ | 41 |  |  | $ | 12 |  |  | $ | — |
Non-U.S. | 812 |  |  | 383 |  |  | 178 |
| 853 |  |  | 395 |  |  | 178 |
Deferred: |  |  |  |  |
U.S. | 36 |  |  | 55 |  |  | (3) |
Non-U.S. | (320) |  |  | (152) |  |  | (26) |
| (284) |  |  | (97) |  |  | (29) |
Income tax expense | $ | 569 |  |  | $ | 298 |  |  | $ | 149 |
The components of net income before tax expense and equity in earnings of unconsolidated entity for the years ended December 31, 2023, 2022 and 2021 are as follows:
| Year Ended December 31,
| 2023 |  | 2022 |  | 2021
| (In millions)
U.S. | $ | (362) |  |  | $ | (207) |  |  | $ | (214) |
Non-U.S. | 1,915 |  |  | 987 |  |  | 455 |
| $ | 1,553 |  |  | $ | 780 |  |  | $ | 241 |
The following is a reconciliation of the difference between the actual charge for income tax and the expected income tax expense computed by applying the statutory income tax rate for the years ended December 31, 2023, 2022 and 2021 to net income before income tax:
| Year Ended December 31,
| 2023 |  | 2022 |  | 2021
| (In millions)
Net income before income tax | $ | 1,553 |  |  | $ | 780 |  |  | $ | 241 |
Income tax rate | 21 | % |  | 21 | % |  | 21 | %
Expected income tax expense | $ | 326 |  |  | $ | 164 |  |  | $ | 51 |
Permanent differences: |  |  |  |  |
Transfer pricing adjustments | 11 |  |  | 3 |  |  | 2 |
Non-deductible tax | 7 |  |  | 1 |  |  | 4 |
Non-deductible expenses | 107 |  |  | 54 |  |  | 29 |
Dividend distributions | (32) |  |  | 12 |  |  | 36 |
Non-taxable income | (167) |  |  | (62) |  |  | (32) |
Effect of rates different than statutory | 117 |  |  | 37 |  |  | 8 |
Currency translation | 335 |  |  | 48 |  |  | 16 |
Change in valuation allowance | 4 |  |  | 92 |  |  | 56 |
Tax Inflation Adjustments | (136) |  |  | (35) |  |  | (19) |
Inventory Adjustments | — |  |  | — |  |  | (1) |
True up | (3) |  |  | (16) |  |  | (1) |
Income tax expense | $ | 569 |  |  | $ | 298 |  |  | $ | 149 |
Income taxes are determined by each subsidiary on a standalone basis according to income tax law of each jurisdiction. The Company’s consolidated effective tax rate for year ended December 31, 2023 as compared to 2022, decreased from 38.2% to 36.6% as a result of the reversal of the valuation allowances in one of the Company´s Mexican subsidiaries during the third quarter of 2023. This decrease was partially offset by taxable foreign exchange gains accounted for local tax purposes in Argentina, which are not recorded for accounting purposes given that under U.S. GAAP and due to Argentina’s highly inflationary status, Argentina’s operations’ functional currency is the U.S. dollar, and higher non-deductible foreign exchange losses related to the acquisition of the Company´s own common stock in the Argentine market (please see Note 25 – Share repurchase program for further information). Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to reverse. The following table summarizes the composition of deferred tax assets and liabilities for the years ended December 31, 2023 and 2022:
| December 31,
| 2023 |  | 2022
| (In millions)
Deferred tax assets |  |  |
Allowance for doubtful accounts | $ | 234 |  |  | $ | 110 |
Unrealized net gains | 3 |  |  | 8 |
Property and equipment, net | 58 |  |  | 43 |
Accounts payable and accrued expenses | 8 |  |  | 17 |
Payroll and social security payable | 42 |  |  | 32 |
Provisions | 275 |  |  | 131 |
U.S. foreign tax credit | 304 |  |  | 156 |
Tax loss carryforwards | 177 |  |  | 255 |
Inventories | 14 |  |  | 3 |
Tax inflation adjustments | — |  |  | 3 |
Total deferred tax assets | 1,115 |  |  | 758 |
Valuation allowance | (374) |  |  | (360) |
Total deferred tax assets, net | 741 |  |  | 398 |
Deferred tax liabilities |  |  |
Property and equipment, net | (21) |  |  | (29) |
Customer lists | — |  |  | (1) |
Unrealized net losses | (4) |  |  | (3) |
Goodwill | (4) |  |  | (4) |
Accounts payable and accrued expenses | (2) |  |  | (3) |
Payroll and social security payable | — |  |  | (7) |
Outside Basis Dividends | (182) |  |  | (103) |
Provisions | (1) |  |  | (8) |
Total deferred tax liabilities | $ | (214) |  |  | $ | (158) |
| $ | 527 |  |  | $ | 240 |
Valuation allowance on deferred tax assets The following table summarizes the tax valuation allowance activity during the years ended December 31, 2023, 2022 and 2021:
| Year Ended December, 31
| 2023 |  | 2022 |  | 2021
Tax valuation allowance | (In millions)
Balance at beginning of year | $ | 360 |  |  | $ | 262 |  |  | $ | 179 |
Charged to Net income | 4 |  |  | 92 |  |  | 56 |
Charges Utilized/Currency translation adjustments and other adjustments | 10 |  |  | 6 |  |  | 27 |
Balance at end of year | $ | 374 |  |  | $ | 360 |  |  | $ | 262 |
As of December 31, 2023, consolidated deferred tax asset on tax loss carryforwards for income tax purposes wer e $177 million. If not utilized, tax loss carryforwards will begin to expire as follows:
2026 | $ | 1 |
2027 | 2 |
2028 | 7 |
2029 | 31 |
2030 | 38 |
Thereafter | 56 |
Without due dates | 42 |
Total | $ | 177 |
Ba sed on Management’s assessment of available objective evidence, the Company maintained a valuation allowance on deferred tax assets of $374 million and $360 million as of December 31, 2023 and 2022, respectively. This valuation allowance includes $304 million and $156 million to fully reserve the outstanding U.S. foreign tax credits as of December 31, 2023 an d 2022, respectively. The valuation allowance increased as of December 31, 2023 compared to 2022, mainly related to the impairment of $148 million on U.S. foreign tax credit, offset by the reversal of $141 million given that is more likely than not that deferred tax assets from DeRemate.com de México, S. de R.L. de C.V., a Mexican subsidiary, will be realized in the foreseeable future. The change in judgment regarding the realizability of the deferred tax assets of the Mexican subsidiary was triggered during the year ended December 31, 2023, as positive trends observed in recent periods became enough evidence to support the conclusion. Knowledge-based economy promotional regime in Argentina On June 10, 2019, the Argentine government enacted Law No. 27,506 (knowledge-based economy promotional regime), which established a regime that provides certain tax benefits for companies that meet specific criteria, such as companies that derive at least 70% of their revenues from certain specified activities related to the knowledge-based economy. The regime was suspended on January 20, 2020, until new rules for the application of the knowledge-based economy promotional regime were issued. On October 7, 2020, changes to the knowledge-based economy promotional regime were finally approved by the Congress. The approved regime has effect from January 1, 2020 through December 31, 2029. Based on the amended promotional regime, companies that meet new specified criteria shall be entitled to: i) a reduction of the income tax burden (60% for micro and small enterprises, 40% for medium-sized enterprises and 20% for large enterprises) over the promoted activities for each fiscal year, applicable to both Argentine source income and foreign source income, ii) stability of the benefits established by the knowledge-based economy promotional regime (as long as the beneficiary is registered and in good standing), and iii) a tax credit bond amounting to 70% (which can be up to 80% in certain specific cases) of the Company’s contribution to the social security regime of every employee whose job is related to the promoted activities (caps on the number of employees are applicable). Such bonds can be used within 24 months from their issue date (which period can be extended for an additional 12 months in certain cases) to offset certain federal taxes, such as value-added tax. On December 20, 2020, Argentina’s Executive Power issued Decree No. 1034/2020, which set the rules to implement the provisions of the knowledge-based economy promotional regime. Eligible companies must enroll in a registry according to the terms and conditions to be established by the Application Authority, which will verify compliance with the requirements. The Decree also set the mechanism for calculating the level of investment in research and development, the level of employee retention, exports, among others. It also establishes that exports of services from companies participating in this regime will not be subject to export duties. On January 13, 2021, Argentina’s Ministry of Productive Development –current Application Authority of the knowledge-based economy promotional regime– issued Resolution No. 4/2021, which was followed by Disposition N° 11/2021 issued by the Under Secretariat of Knowledge Economy on February 12, 2021. Both rules establish further details on the requirements, terms, conditions, application, and compliance procedures to be eligible under the promotional regime. In August 2021, the Under Secretariat of Knowledge Economy issued the Disposition 316/2021 approving MercadoLibre S.R.L.’s application for eligibility under the knowledge-based economy promotional regime. Tax benefits granted pursuant to the promotional regime to MercadoLibre S.R.L. were retroactive to January 1, 2020. As a result, the Company accounted for an income tax benefit of $14 million for the year ended December 31, 2021, which $8 million corresponded to the year ended December 31, 2020. The aggregate per share effect of the income tax benefit amounted to $0.29 for the year ended December 31, 2021. Furthermore, the Company recorded a social security benefit of $45 million for the year ended December 31, 2021, which $15 million corresponded to the year ended December 31, 2020. Given that the promotional regime establishes that exports of services by eligible companies are not subject to export duties, the Company recognized a gain of $24 million related to export duties accrued from January 2020 to August 2021 that are no longer required to be paid. Additionally, for the year ended December 31, 2021, the Company accrued a charge of $4 million to pay knowledge-based economy promotional law audit fees and FONPEC (“Fondo Fiduciario para la Promoción de la Economía del Conocimiento”) contribution. During the years ended December 31, 2023 and 2022, the Company accounted for an income tax benefit of $42 million and $27 million, respectively. The aggregate per share effect of the income tax benefit amounted to $0.84 and $0.54 for the years ended December 31, 2023 and 2022, respectively. Furthermore, the Company recorded a social security benefit of $67 million and $54 million for the years ended December 31, 2023 and 2022, respectively. Additionally, during the years ended December 31, 2023 and 2022, the Company accrued a charge of $6 million and $5 million, respectively, to pay knowledge-based economy promotional law audit fees and FONPEC contribution.

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