NOTE 5 — INCOME TAXES:

The income tax provision and the effective income tax rate for the nine months of 2016 and 2015 consisted of ($ in millions):

	2016			2015
Statutory income tax provision	$	268.5		$	366.8
Peruvian royalty	—			3.0
Mexican royalty	29.4			22.8
Peruvian special mining tax	7.5			19.0

Income tax provision	$	305.4		$	411.6


Effective income tax rate	34.1		%	38.1		%

These provisions include income taxes for Peru, Mexico and the United States. In addition, a Mexican royalty tax, a portion of the Peruvian royalty tax and the Peruvian special mining tax are included in the income tax provision. The effective income tax rate decreased by 4.0% from the 2015 nine-month period to the comparable 2016 period, of which approximately 1% is related to a reduction in the Peruvian special mining tax due to lower SCC Peruvian branch earnings. The remaining decrease of 3% is primarily due to a reduction in estimated prior year creditable foreign taxes at the SCC Peruvian branch and from lower tier Mexican subsidiaries. At December 31, 2015 the Company had approximately $187.4 million of net foreign tax credit carryforwards that can be used to offset taxable income in future periods and reduce the Company´s income taxes payable in those periods. These credits will expire if they are not used within certain periods. At this time, the Company considers it more likely than not that it will have sufficient taxable income in the future that will allow to utilize these credits. However, if metal prices continue to decline, it is possible that some or all of the credits could ultimately expire unused and require a valuation allowance that could materially increase tax expense.

Peruvian royalty tax: The mining royalty charge is based on operating income margins with graduated rates ranging from 1% to 12% of operating profits, with a minimum royalty charge assessed at 1% of net sales. If the operating income margin is 10% or less, the royalty charge is 1% and for each 5% increment in the operating income margin, the royalty charge rate increases by 0.75%, up to a maximum of 12%. The minimum royalty charge assessed at 1% of net sales is recorded as cost of sales and those amounts assessed against operating income are included in the income tax provision. The Company has accrued $12.2 million and $18.5 million of royalty charge in the nine months of 2016 and 2015, respectively, of which $3.0 million was included in income taxes in 2015; no amounts were included in income tax in the nine months of 2016.

Peruvian special mining tax: This tax is based on operating income at rates ranging 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 has accrued $7.5 million and $19.0 million of special mining tax as part of the income tax provision for the nine months of 2016 and 2015, respectively.

Peruvian income tax rate: In 2014, the Peruvian government enacted tax law changes to both the income tax and dividend tax rates that became effective on January 1, 2015. The new rates are as follows:

Year	Income Tax Rate		Dividend Tax Rate
2015- 2016	28	%	6.8	%
2017- 2018	27	%	8.0	%
2019 and later	26	%	9.3	%

Mexican mining royalty: In December 2013, the Mexican government enacted a new law which, among other things, established a mining royalty charge of 7.5% on earnings before taxes as defined by Mexican tax regulations and an additional royalty charge of 0.5% over gross income from sales of gold, silver and platinum. The Company has accrued $29.4 million and $22.8 million of royalty taxes as part of the income tax provision for the nine months of 2016 and 2015, respectively.

Accounting for uncertainty in income taxes: In the third quarter and nine months of 2016, there were no changes in the Company’s uncertain tax positions.