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INCOME TAXES:
 9 Months Ended
Sep. 30, 2012
INCOME TAXES:  
INCOME TAXES:

NOTE 5 — INCOME TAXES:

 

The income tax provision and the effective income tax rate for the nine months of 2012 and 2011 were as follows ($ in millions):

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Income tax provision

 

$

848.5

 

$

792.5

 

Effective income tax rate

 

38.2

%

30.5

%

 

These provisions include income taxes for Peru, Mexico and the United States. The increase in the effective tax rate in the nine months of 2012 from the tax rate in the 2011 period is principally caused by the legal fees related to the AMC damage award, which increased the effective rate for the nine month 2012 period by 4.7%, see Note 2.  In addition, the rate was also increased by the new special mining tax in Peru, see below.

 

For United States federal income tax reporting the operating results of SCC are included in the AMC U.S. federal income tax return.  In accordance with paragraph 30-27 of ASC 740-10-30, current and deferred taxes are allocated to members of the AMC group as if each were a separate taxpayer.  SCC provides current and deferred income taxes as if it was a separate filer.

 

Special Mining Tax

 

In September 2011, the Peruvian government enacted a new tax for the mining industry.  This tax is based on operating income and its rate ranges from 2% to 8.4%. It begins at 2% for operating income of up to 10% of sales and increases by 0.4% of operating income for each additional 5% of operating income until 85% of operating income is reached.  The Company has accrued $40.5 million for the special mining tax and is included as part of the income tax provision for the nine months of 2012.

 

Accounting for Uncertainty in Income Taxes:

 

The Company files tax returns in Peru, the United States and in Mexico.  These tax returns are examined by the tax authorities of those countries. It is reasonably possible that during the next 12 months there could be an increase of approximately $30 to $50 million in the Company’s unrecognized tax benefits due to expected activity from tax examinations and audits by the tax authorities.