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INCOME TAXES: | 12 Months Ended
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Dec. 31, 2012
INCOME TAXES: |
INCOME TAXES: | NOTE 7-INCOME TAXES: The components of the provision for income taxes are as follows:
|  | Years ended December 31, |
(in millions) |  | 2012 |  | 2011 |  | 2010 |
U.S. federal and state: |  |  |  |  |  |  |
Current |  | $ | (0.1 | ) | $ | (2.4 | ) | $ | (11.2 | )
Deferred |  | (108.6 | ) | (45.3 | ) | 6.2 |
Uncertain tax positions |  | 147.4 |  | (0.4 | ) | 34.8 |
|  | 38.7 |  | (48.1 | ) | 29.8 |
Foreign (Peru and Mexico): |  |  |  |  |  |  |
Current |  | 1,025.1 |  | 1,238.7 |  | 843.5 |
Deferred |  | 17.1 |  | (86.3 | ) | (5.2 | )
|  | 1,042.2 |  | 1,152.4 |  | 838.3 |
Total provision for income taxes |  | $ | 1,080.9 |  | $ | 1,104.3 |  | $ | 868.1 |
The source of income is as follows:
|  | For the years ended December 31, |
(in millions) |  | 2012 |  | 2011 |  | 2010 |
Earnings by location: |  |  |  |  |  |  |
U.S. |  | $ | (0.1 | ) | $ | (1.1 | ) | $ | (1.0 | )
Foreign |  |  |  |  |  |  |
Peru |  | 846.0 |  | 1,351.9 |  | 1,544.7 |
Mexico |  | 2,127.6 |  | 2,097.9 |  | 887.1 |
|  | 2,973.6 |  | 3,449.8 |  | 2,431.8 |
Earnings before taxes on income |  | $ | 2,973.5 |  | $ | 3,448.7 |  | $ | 2,430.8 |
The reconciliation of the statutory income tax rate to the effective tax rate is as follows (in percentage points):
|  | For the years ended December 31, |
|  | 2012 |  | 2011 |  | 2010 |
Expected tax |  | 30.0 | % | 30.0 | % | 30.0 | %
Effect of income taxed at a rate other than the statutory rate |  | 1.6 |  | 4.3 |  | 5.3 |
Percentage depletion |  | (4.2 | ) | (4.0 | ) | (4.3 | )
Other permanent differences |  | 3.7 |  | 1.2 |  | 1.8 |
Peru tax on net income deemed distributed |  | 1.3 |  | 1.3 |  | 2.0 |
Special mining tax |  | 1.6 |  | 0.5 |  | — |
Mexican tax on dividends |  | — |  | — |  | 0.4 |
Increase (decrease) in unrecognized tax benefits for uncertain tax positions |  | 5.0 |  | — |  | 4.6 |
Repatriated foreign earnings |  | (1.7 | ) | 2.1 |  | — |
Amounts (over) / under provided in prior years |  | (0.6 | ) | (3.5 | ) | (4.5 | )
Other |  | (0.4 | ) | 0.1 |  | 0.4 |
Effective income tax rate |  | 36.3 | % | 32.0 | % | 35.7 | %
The Company files income tax returns in three jurisdictions, Peru, Mexico and the United States. For the three years presented above the statutory income tax rates for Peru and Mexico were 30% and 35% for the United States. The expected rate used above is the statutory tax rate for Peru and Mexico. The Mexican rate is scheduled to decrease to 29% in 2014, and to 28% in 2015 and future years. The Company uses the Peruvian and Mexican income tax rate of 30% for this tax rate reconciliation because it is the largest component of tax expense for each of the three years presented. For all of the years presented, both the Peruvian branch and Minera Mexico filed separate tax returns in their respective tax jurisdictions. Although the tax rules and regulations imposed in the separate tax jurisdictions may vary significantly, similar permanent items exist, such as items which are nondeductible or nontaxable. Some permanent differences relate specifically to SCC such as the allowance in the United States for percentage depletion. SCC’s taxable income for the fiscal years 2010 through 2012, were included in the U.S. federal income tax return of AMC, its parent company; see U.S. tax matters, below. For financial reporting and presentation purposes SCC is providing current and deferred income taxes, as if it remains a separate U.S. tax filer apart from AMC. Deferred taxes include the U.S., Peruvian and Mexican tax effects of the following types of temporary differences and carryforwards:
|  | As of December 31, |
(in millions) |  | 2012 |  | 2011 |
Assets: |  |  |  |  |
Inventories |  | $ | 23.6 |  | $ | 23.2 |
Trade receivables |  | — |  | 18.1 |
Capitalized exploration expenses |  | 24.4 |  | 31.9 |
U.S. foreign tax credit carryforward |  | 202.3 |  | 174.4 |
U.S tax effect of Peruvian deferred tax liability |  | 33.4 |  | 3.7 |
Reserves |  | 77.5 |  | 69.7 |
Mexican tax loss carryforward |  | 26.9 |  | 35.7 |
Labor share buyback |  | 30.0 |  | 30.1 |
Other |  | 32.6 |  | 14.0 |
Total deferred tax assets |  | 450.7 |  | 400.8 |
Liabilities: |  |  |  |  |
Property, plant and equipment |  | (125.0 | ) | (166.2 | )
Deferred charges |  | (81.6 | ) | (35.3 | )
Mexican tax on consolidated dividends |  | (34.6 | ) | (32.6 | )
Outside basis difference |  | (41.3 | ) | (91.6 | )
Metal hedging |  | — |  | (4.0 | )
Other |  | (0.5 | ) | (2.1 | )
Total deferred tax liabilities |  | (283.0 | ) | (331.8 | )
Total net deferred tax assets / (liabilities) |  | $ | 167.7 |  | $ | 69.0 |
U.S. Tax Matters— In 2011, $27.8 million of capital loss carryovers expired unutilized. In 2012, $0.9 million of capital loss carryover was utilized and $1.3 million expired. The Company had a full valuation allowance on the capital loss carryforwards. As of December 31, 2012, the Company considers its ownership of the stock of Minera Mexico to be essentially permanent in duration. The excess of the amount for financial reporting over the tax basis of the investment in this stock is estimated to be at least $2.6 billion. The Company has provided a deferred tax liability of $41.3 million as of December 31, 2012 for the U.S. income tax effects of $425 million of foreign earnings that may potentially be repatriated in the future from Minera Mexico. At December 31, 2012, there were $202.3 million of foreign tax credits available for carryback or carryforward. These credits have limited carryback and carryforward periods and can only be used to reduce U.S. income tax on foreign earnings included in the annual U.S. consolidated income tax return. There were no other U.S. tax credits at December 31, 2012. As of March 27, 2009, Grupo Mexico, through its wholly-owned subsidiary, AMC, became the beneficial owner of 80% of SCC’s common stock. As a result of this new level of ownership, beginning March 27, 2009, SCC’s operating results are included in the AMC consolidated U.S. federal income tax return. In addition to holding an 81.3% interest in SCC, AMC also owns 100% of Asarco and its subsidiaries. In accordance with paragraph 30-27 of ASC 740-10-30, it is expected that current and deferred taxes will be allocated to members of the AMC group as if each were a separate taxpayer. SCC provides current and deferred income taxes, as if it were filing a separate income tax return. Peruvian Tax Matters— The Company obtains income tax credits in Peru for value-added taxes paid in connection with the purchase of capital equipment and other goods and services, employed in its operations and records these credits as a prepaid expense. Under current Peruvian law, the Company is entitled to use the credits against its Peruvian income tax liability or to receive a refund. The carrying value of these Peruvian tax credits approximates their net realizable value. 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 margin up to 10% and increases by 0.4% of operating income for each additional 5% of operating income until 85% of operating income is reached. The Company made provision for this tax of $49.6 million and $16.4 million in 2012 and 2011, respectively. These provisions are included as “income taxes” in the consolidated statement of earnings. Mexican Tax Matters— In 2009, Mexico enacted new rules related to the income tax law. The new rules eliminated an indefinite deferral period for the payment of taxes assessed on dividends paid in excess of the tax basis retained earnings accounts that are distributed among entities of a consolidated tax group, and the offsetting net operating losses (NOL´s) incurred by one entity against the profits of another entity, until the occurrence of certain events, such as the dissolution of the tax consolidation regime. In 2009, the Company recognized the additional liability caused by this change and is amortizing the required catch-up over a five-year period ending in 2014. At December 31, 2012, the deferred balance to be paid is approximately 300 million pesos (approximately $27 million), of which $18 million will be paid in 2013 and $9 million in 2014. The Mexican statutory income tax rate is 30% and is scheduled to decrease to 29% in 2014, and to 28% in 2015 and future years. Mexican companies are subject to a dual tax system comprised of regular income tax and a corporate flat tax that was enacted in 2007. The rate under the corporate flat tax law is 17.5%. Mexican companies pay the greater of the corporate flat tax or regular income tax and determine its deferred income taxes based on the tax regime it expects to be subject to in the future. Based on earnings projections, the Company believes it will be subject to regular income tax for the foreseeable future and has calculated its temporary differences and deferred taxes based on the regular income tax law. Accounting for Uncertainty in Income Taxes- The total amount of unrecognized tax benefits in 2012, 2011 and 2010, was as follows (in millions):
|  | 2012 |  | 2011 |  | 2010 |
Unrecognized tax benefits, opening balance |  | $ | 70.6 |  | $ | 75.7 |  | $ | 30.7 |
Gross increases — tax positions in prior period |  | 39.7 |  | 21.6 |  | 46.3 |
Gross decreases — tax positions in prior period |  | 0.2 |  | (26.8 | ) | (1.8 | )
Gross increases — current-period tax positions |  | 110.7 |  | 0.1 |  | 0.5 |
|  | 150.6 |  | (5.1 | ) | 45.0 |
Unrecognized tax benefits, ending balance |  | $ | 221.2 |  | $ | 70.6 |  | $ | 75.7 |
The overall increase in the 2012 unrecognized tax benefit of $150.6 million relates primarily to the deduction of permanent items such as depletion, legal fees and decrease in foreign tax credits. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $221.2 million at December 31, 2012 and $70.6 million at December 31, 2011. These amounts relate entirely to U.S. income tax matters. The Company has no unrecognized Peruvian or Mexican tax benefits. As of December 31, 2012 and 2011, the Company’s liability for uncertain tax positions included no amount for accrued interest and penalties due to the excess foreign tax credits. At December 31, 2010, the Company’s liability for uncertain tax positions included accrued interest and penalties of $8.0 million. The following tax years remain open to examination and adjustment in the Company’s three major tax jurisdictions:
Peru: | 2008 up to 2011 (the year 2008 is scheduled to be examined in 2013).
U.S.: | 2008 and all future years
Mexico: | 2004 and all future years
Management does not expect that any of the open years will result in a cash payment within the upcoming twelve months ending December 31, 2013. The Company’s reasonable expectations about future resolutions of uncertain items did not materially change during the year ended December 31, 2012. In the second quarter of 2011, the Company reached agreement with the IRS and settled tax years 2005, 2006, and 2007. In the fourth quarter of 2011, the IRS commenced its U.S. federal income tax audit of the Company for the years 2008 through 2010.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 + Details
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