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INCOME TAXES:

6 Months Ended

Jun. 30, 2019

NOTE 4 — INCOME TAXES:

The income tax provision and the effective income tax rate for the first six months of 2019 and 2018 consisted of ($ in millions):


	2019			2018
Statutory income tax provision	$	429.1		$	473.3
GILTI Tax		—			8.4
Peruvian royalty		6.5			4.4
Mexican royalty		35.2			45.0
Peruvian special mining tax		18.2			14.6
Total income tax provision	$	489.0		$	545.7

Effective income tax rate		38.1	%		38.3	%

These provisions include income taxes for Peru, Mexico and the United States. In addition, the Mexican royalty, the Peruvian royalty and the Peruvian special mining tax are included in the income tax provision. The effective tax rate for the first six months of 2019 remained relatively unchanged from the same period in the prior year, only decreasing by 0.2%. There was a 1.2% decrease in the rate due to the movement in exchange gain or loss from the appreciation in 2019

of the Mexican peso versus the U.S. dollar measured against the devaluation of the Mexican peso in the same period of 2018, which was mostly offset by an increase in the rate of 1.0% due to small increases in Peruvian income tax, dividend tax and Special Mining tax.

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 $19.8 million and $15.9 million of royalty charge in the first six months of 2019 and 2018, respectively, of which $6.5 million and $4.4 million were included in income taxes in 2019 and 2018, 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 $18.2 million and $14.6 million of special mining tax as part of the income tax provision for the first six months of 2019 and 2018, 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 $35.2 million and $45.0 million of royalty taxes as part of the income tax provision for the first six months of 2019 and 2018, respectively.

Accounting for uncertainty in income taxes:

The amount of unrecognized tax benefits (UTB’s) that, if recognized, could affect the effective tax rate was $69.5 million at June 30, 2019, and $214.5 million at December 31, 2018. The change in the UTB’s relate entirely to U.S. income tax matters and the Company has no unrecognized Peruvian or Mexican tax benefits. The $145 million reduction during the quarter is due to the settlement with the Internal Revenue Service (IRS) of the examination of the 2011-2013 tax years. The change in the UTB’s had been anticipated by the Company, but because of the income tax accounting rules under ASC 740, the issues had to be effectively settled and the examination closed before the effect was final and reflected in the financial statements. The audit closing resulted in an immaterial tax benefit in the financial statements that was the result of the removal of the previous accrual of interest and penalty. The remaining reversal of uncertain tax positions was offset by changes in the deferred tax asset for foreign tax credits and valuation allowance.

The Internal Revenue Service field audit of 2014-2016 commenced during the six months ended June 30, 2019 and with the closing of the 2011-2013 examination, the remaining years open to examination and adjustment in the United States are 2014 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 June 30, 2020. The Company's reasonable expectations about future resolutions of uncertain items did not materially change during the six months ended June 30, 2019.