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INCOME TAXES: | 3 Months Ended
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Mar. 31, 2018
INCOME TAXES: |
INCOME TAXES: | NOTE 4 — INCOME TAXES: The income tax provision and the effective income tax rate for the first quarter 2018 and 2017 consisted of ($ in millions):
|  | 2018 |  | 2017 |
Statutory income tax provision |  | $ | 212.3 |  | $ | 148.5 |
Peruvian royalty |  | 1.7 |  | 0.4 |
Mexican royalty |  | 16.1 |  | 21.4 |
Peruvian special mining tax |  | 6.5 |  | 5.9 |
Income tax provision |  | $ | 236.6 |  | $ | 176.2 |
Effective income tax rate |  | 33.6 | % | 36.3 | %
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 decrease in the effective tax rate for the first quarter of 2018 from the same period in the prior year is primarily due to the U.S. Tax Cuts and Jobs Act enacted in December 2017, which cause dividends from the Company’s Mexican subsidiary to no longer be taxed in the U.S. On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. Changes under the Act include, among others, a decrease in the corporate tax rate from 35% to 21%, the transition of the U.S. taxation of international operation from a worldwide system to a quasi-territorial system, a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017, a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries, and a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations. As reported in detail in the Company’s annual report on Form 10-K for the year ended December 31, 2017, these tax law changes accounted for a provisional non-cash tax expense adjustment of $785.9 million in 2017. There have been no material changes to the provisional amounts recorded in the last quarter of 2017. Recognizing that public reporting entities would not have sufficient time and resources to properly analyze all the provisions of the Act, on December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provides guidance on the accounting for the impact of the Act. The focus of SAB 118 is what to do when an entity does not have the necessary information available, analyzed or prepared in reasonable detail to complete the accounting pursuant to the guidelines of ASC 740 Income Taxes. The Company adopted SAB 118 and accordingly, its accounting for the effect of the Act is based on reasonable estimates, which can require additional adjustment throughout the one year measurement period commencing on December 22, 2017. As more information becomes available, the Company will continue to review whether changes are necessary to the provisional amounts recorded in 2017. The ultimate impact of the Act may differ from these provisional amounts, possibly materially. After the Company files its 2017 U.S. federal income tax return and finalizes certain tax positions it will conclude whether further adjustments are required to its net deferred tax assets or liabilities, current year foreign tax credits and any liability associated with the one-time mandatory tax on the repatriation of foreign earnings. Two new taxes became effective as of January 1, 2018: the Global Intangible Low Tax Income or GILTI tax and the Base Erosion Anti-Abuse Tax or BEAT. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The Company’s current analysis of the tax on the GILTI inclusion indicates that the Company could be subject to this additional tax for 2018. However, the estimated tax impact was not material to the quarter. Future U.S. inclusions in taxable income related to GILTI depends on a number of different aspects of the Company’s estimated future results of global operations. The Company is not yet able to reasonably estimate the long-term effects of this provision of the Act, and accordingly has not recorded any potential deferred tax effects related to GILTI in its financial statements. Additionally, the Company not made a policy decision regarding whether to record deferred taxes on GILTI or to use the period cost method. The BEAT tax rate is 5% for tax years beginning in 2018 (10% for 2019 through 2025, and 12.5% for tax years beginning after 2025) and is calculated on a base equal to the Company’s income determined without the tax benefit arising from base erosion payments. The erosion payments are a specifically defined set of deductible expenses. Provisional estimates indicate that the Company will not likely be subject to the BEAT in 2018. The Company is still in the process of analyzing the provisions of these taxes and the effect they may or may not have on future results and financial reporting. The issuance of future administrative guidance may further clarify the interpretation of the new law. Peruvian royalty and special mining 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 $7.1 million and $5.5 million of royalty charge in the first quarter 2018 and 2017, respectively, of which $1.7 million and $0.4 million were included in income taxes in 2018 and 2017, respectively. The special mining 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 has accrued $6.5 million and $5.9 million of special mining tax as part of the income tax provision for the first quarter 2018 and 2017, respectively. Mexican mining royalty: Mexico has 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 $16.1 million and $21.4 million of royalty taxes as part of the income tax provision for the first quarter 2018 and 2017, respectively. In the first quarter of 2018, the Company has paid $87.7 million for year 2017 mining royalty. Accounting for uncertainty in income taxes: In the first quarter of 2018, there were no changes in the Company’s uncertain tax positions.

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