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INCOME TAXES: | 12 Months Ended
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Dec. 31, 2013
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) |  | 2013 |  | 2012 |  | 2011 |
U.S. federal and state: |  |  |  |  |  |  |
Current |  | $ | — |  | $ | (0.1 | ) | $ | (2.4 | )
Deferred |  | (139.3 | ) | (108.6 | ) | (45.3 | )
Uncertain tax positions |  | — |  | 147.4 |  | (0.4 | )
|  | (139.3 | ) | 38.7 |  | (48.1 | )
Foreign (Peru and Mexico): |  |  |  |  |  |  |
Current |  | 866.3 |  | 1,025.1 |  | 1,238.7 |
Deferred |  | 42.3 |  | 17.1 |  | (86.3 | )
|  | 908.6 |  | 1,042.2 |  | 1,152.4 |
Total provision for income taxes |  | $ | 769.3 |  | $ | 1,080.9 |  | $ | 1,104.3 |
The source of income is as follows:
|  | For the years ended December 31, |
(in millions) |  | 2013 |  | 2012 |  | 2011 |
Earnings by location: |  |  |  |  |  |  |
U.S. |  | $ | 0.1 |  | $ | (0.1 | ) | $ | (1.1 | )
Foreign |  |  |  |  |  |  |
Peru |  | 773.8 |  | 846.0 |  | 1,351.9 |
Mexico |  | 1,598.7 |  | 2,127.6 |  | 2,097.9 |
|  | 2,372.5 |  | 2,973.6 |  | 3,449.8 |
Earnings before taxes on income |  | $ | 2,372.6 |  | $ | 2,973.5 |  | $ | 3,448.7 |
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, |
|  | 2013 |  | 2012 |  | 2011 |
Expected tax |  | 30.0 | % | 30.0 | % | 30.0 | %
Effect of income taxed at a rate other than the statutory rate |  | 1.7 |  | 1.6 |  | 4.3 |
Percentage depletion |  | (5.0 | ) | (4.2 | ) | (4.0 | )
Other permanent differences |  | 3.5 |  | 3.7 |  | 1.2 |
Peru tax on net income deemed distributed |  | 1.2 |  | 1.3 |  | 1.3 |
Special mining tax |  | 2.0 |  | 1.6 |  | 0.5 |
Increase (decrease) in unrecognized tax benefits for uncertain tax positions |  | — |  | 5.0 |  | — |
Repatriated foreign earnings |  | (1.4 | ) | (1.7 | ) | 2.1 |
Amounts (over) / under provided in prior years |  | 0.4 |  | (0.6 | ) | (3.5 | )
Other |  | — |  | (0.4 | ) | 0.1 |
Effective income tax rate |  | 32.4 | % | 36.3 | % | 32.0 | %
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 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 2011 through 2013, was, or will be, 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) |  | 2013 |  | 2012 |
Assets: |  |  |  |  |
Inventories |  | $ | 18.7 |  | $ | 23.6 |
Capitalized exploration expenses |  | 29.4 |  | 24.4 |
U.S. foreign tax credit carryforward |  | 280.0 |  | 202.3 |
U.S tax effect of Peruvian deferred tax liability |  | 68.0 |  | 33.4 |
Reserves |  | 35.0 |  | 77.5 |
Mexican tax loss carryforward |  | — |  | 26.9 |
Labor share buyback |  | — |  | 30.0 |
Other |  | 27.9 |  | 32.6 |
Total deferred tax assets |  | 459.0 |  | 450.7 |
Liabilities: |  |  |  |  |
Property, plant and equipment |  | (105.8 | ) | (125.0 | )
Deferred charges |  | (79.6 | ) | (81.6 | )
Mexican tax on consolidated dividends |  | (31.5 | ) | (34.6 | )
Outside basis difference |  | (7.4 | ) | (41.3 | )
Other |  | (0.1 | ) | (0.5 | )
Total deferred tax liabilities |  | (224.4 | ) | (283.0 | )
Total net deferred tax assets / (liabilities) |  | $ | 234.6 |  | $ | 167.7 |
U.S. Tax Matters— 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. In September 2013 the Internal Revenue Service (IRS) issued the final Tangible Property Regulations. These regulations are effective January 1, 2014 with some elective retroactive application available. These regulations look to provide a framework for distinguishing capital expenditures from deductible business expenses and they attempt to find the middle ground where taxpayers and the IRS often disagreed. The Company has reviewed these regulations and has concluded that they should not have a material effect on its financial statements. As of December 31, 2013, 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 $4.4 billion. The Company has provided a deferred tax liability of $7.4 million as of December 31, 2013 for the U.S. income tax effects of $76.2 million of foreign earnings that may potentially be repatriated in the future from Minera Mexico. At December 31, 2013, there were $280.0 million of foreign tax credits available for carryback or carryforward. These credits have a one year carryback and a ten year carryforward period and can only be used to reduce U.S. income tax on foreign earnings. There were no other unused U.S. tax credits at December 31, 2013. These credits expire as follows:
Year |  | Amount |
2016 |  | $ | 19.0 |
2018 |  | 70.5 |
2020 |  | 27.9 |
2021 |  | 11.7 |
2022 |  | 84.1 |
2023 |  | 66.8 |
Total |  | $ | 280.0 |
These foreign tax credits are presented on a gross basis and have not been reduced here for any unrecognized tax benefits. ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” is effective prospectively for the Company’s fiscal year beginning January 1, 2014. Since March 2009, Grupo Mexico, through its wholly-owned subsidiary AMC, owns an interest in excess of 80% of SCC. Accordingly, SCC’s results are included in the consolidated results of the Grupo Mexico subsidiary for U.S. federal income tax reporting. 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 goods and services employed in its operations and capital equipment 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 $25.5 million, $49.6 million and $16.4 million in 2013, 2012 and 2011, respectively. These provisions are included as “income taxes” in the consolidated statement of earnings. Mexican Tax Matters- In 2013, the Mexican Congress enacted tax law changes that become effective on January 1, 2014. Among others, this new law: i) establishes a mining royalty at the rate of 7.5% on taxable EBITDA and an additional royalty of 0.5% over gross income from sales of gold, silver and platinum; ii) establishes that exploration expenses will be depreciated at 10% per year instead of the 100% that was applied until 2013; iii) replaces the consolidation tax regime and creates a more restrictive tax consolidation regimen; iv) establishes a 10% withholding on dividends distributed to Mexican individuals or foreign residents (individuals or corporations) and applies to net income generated after 2013; v) limits (at 47 or 53%) deductions for tax-exempt salaries as well as for contributions to pension plans; vi) maintains the Mexican statutory income tax rate at 30% thereby eliminating the scheduled reductions for 2014 and 2015; and vii) eliminates the flat tax. Related to these tax changes, in 2013 the Company recognized a deferred income tax charge of $34.7 million. Accounting for Uncertainty in Income Taxes- The total amount of unrecognized tax benefits in 2013, 2012 and 2011, was as follows (in millions):
|  | 2013 |  | 2012 |  | 2011 |
Unrecognized tax benefits, opening balance |  | $ | 221.2 |  | $ | 70.6 |  | $ | 75.7 |
Gross increases — tax positions in prior period |  | — |  | 39.7 |  | 21.6 |
Gross decreases — tax positions in prior period |  | — |  | 0.2 |  | (26.8 | )
Gross increases — current-period tax positions |  | — |  | 110.7 |  | 0.1 |
|  | — |  | 150.6 |  | (5.1 | )
Unrecognized tax benefits, ending balance |  | $ | 221.2 |  | $ | 221.2 |  | $ | 70.6 |
The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $221.2 million at December 31, 2013 and 2012. These amounts relate entirely to U.S. income tax matters. The Company has no unrecognized Peruvian or Mexican tax benefits. As of December 31, 2013 and 2012, the Company’s liability for uncertain tax positions included no amount for accrued interest and penalties due to the excess foreign tax credits. The following tax years remain open to examination and adjustment in the Company’s three major tax jurisdictions:
Peru: |  | 2009 up to 2013 (years 2009 and 2010 are being examined in 2014).
U.S.: |  | 2008 and all subsequent years
Mexico: |  | 2007 and all subsequent 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, 2014. The Company’s reasonable expectations about future resolutions of uncertain items did not materially change during the year ended December 31, 2013.

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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 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: 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 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: 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 5: 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 6: 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 7: 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 8: 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. + Details
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