XML 82 R16.htm IDEA: XBRL DOCUMENT
v3.19.3.a.u2

INCOME TAXES: | 12 Months Ended
--- | ---
Dec. 31, 2019
INCOME TAXES: |
INCOME TAXES: | NOTE 7—INCOME TAXES: ​ 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 U.S. federal income tax return. ​ On December 22, 2017, the TCJA was signed into law, making substantial changes to the 1986 Internal Revenue Code. Changes under the TCJA 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 the higher of the accumulated foreign income as of November 2, 2017 or 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. ​ Although most provisions of the TCJA began on January 1, 2018, ASC 740 “Income Taxes” requires that the effects of tax law changes be recognized in the year and period of the law change and be reflected in the company’s financial results for 2017. On December 22, 2017, the SEC staff issued SAB 118 to address the application of U.S. GAAP in situations when a registrant did not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the TCJA. SAB 118 required a company to reflect the income tax effects of the TCJA for which the accounting under ASC 740 “Income Taxes” is complete; if it is incomplete but the Company is able to determine a reasonable estimate, a provisional estimate must be provided in the financial statements. If a provisional estimate cannot be reasonably prepared, the Company should continue to apply ASC 740 on the basis of the provision of the tax law that were in effect immediately before the enactment of the TCJA. Companies had one year from the enactment of the TCJA to finalize accounting for the impacts of the TCJA. ​ The Company adopted SAB 118 and accordingly recorded a provisional $785.9 million non-cash tax expense for the estimated effects of the TCJA in its 2017 financial statements as a result of adjustments related to the valuation allowances for foreign tax credits and other deferred tax assets, valuation of net deferred tax assets due to the rate change from 35% to 21% and the transition tax on the repatriation of cumulative foreign earnings. In 2018, the Company determined the final impact of the TCJA to be $816.8 million, a $30.9 million change from the provisional amount estimated at December 31, 2017. ​ For 2018, the TCJA created a new category of foreign income, the Global Intangible Low Tax Income or GILTI. ​ The new GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. For 2018, there was no U.S. tax liability from the GILTI inclusion. The Company does not anticipate a tax on GILTI in the future because of increased fixed asset amounts and with a Mexican tax rate of 30% no U.S. deferred taxes would be recorded. Accordingly, the Company has elected that if GILTI were to apply in the future, a current period expense would be recorded when incurred. ​ The Base Erosion Anti-Abuse Tax (BEAT) is a 5% minimum tax for tax year 2018, 10% for the years 2019 through 2025 and 12.5% in years thereafter. It is calculated on a base equal to the Company’s income determined without the tax benefit arising from base erosion payments. The Company did not incur a BEAT liability in 2018 and 2019 since it has met the safe harbor rule that provides a Company not to be subject to the BEAT if related party payments from the U.S. to foreign entities does not exceed 3% of expenses excluding cost of goods sold. The Company must continue to analyze applicability of the BEAT provisions on a quarterly basis. ​ The components of the provision for income taxes for the three years ended December 31, 2019, are as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(in millions) |  | 2019 |  | 2018 |  | 2017
U.S. federal and state: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Current | ​ | $ | — | ​ | $ | 2.6 | ​ | $ | —
Deferred | ​ |  | — | ​ |  | (13.0) | ​ |  | 686.2
Uncertain tax positions | ​ |  | (1.3) | ​ |  | — | ​ |  | 16.2
​ | ​ |  | (1.3) | ​ |  | (10.4) | ​ |  | 702.4
Foreign (Peru and Mexico): | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Current | ​ |  | 966.3 | ​ |  | 1,102.4 | ​ |  | 951.7
Deferred | ​ | ​ | (30.1) | ​ |  | (38.5) | ​ |  | (60.7)
Uncertain tax positions | ​ |  | 10.4 | ​ |  | — | ​ | ​ | —
​ | ​ |  | 946.6 | ​ |  | 1,063.9 | ​ |  | 891.0
Total provision for income taxes | ​ | $ | 945.3 | ​ | $ | 1,053.5 | ​ | $ | 1,593.4
​ The source of income is as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(in millions) |  | 2019 |  | 2018 |  | 2017
Earnings by location: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
U.S. | ​ | $ | (1.9) | ​ | $ | (2.3) | ​ | $ | (1.5)
Foreign | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Peru | ​ |  | 513.0 | ​ |  | 441.8 | ​ |  | 284.6
Mexico | ​ |  | 1,915.4 | ​ |  | 2,149.9 | ​ |  | 2,019.6
​ | ​ |  | 2,428.4 | ​ |  | 2,591.7 | ​ |  | 2,304.2
Earnings before taxes on income | ​ | $ | 2,426.5 | ​ | $ | 2,589.4 | ​ | $ | 2,302.7
​ The reconciliation of the statutory income tax rate to the effective tax rate for the three years ended December 31, 2019, is as follows (in percentage points):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2019 |  | 2018 |  | 2017 |
Expected tax at U.S. statutory rate |  | 21.0 | % | 21.0 | % | 35.0 | %
Foreign tax at other than statutory rate, net of foreign tax credit benefit (1) |  | 14.0 | ​ | 13.9 | ​ | 0.6 | ​
Percentage depletion |  | (2.7) | ​ | (2.1) | ​ | (2.9) | ​
Other permanent differences |  | 0.1 | ​ | 0.4 | ​ | 5.2 | ​
Change in 2017 valuation allowance on U.S. deferred tax assets, foreign tax credits and U.S. tax effect on Peruvian deferred taxes | ​ | — | ​ | 7.5 | ​ | 26.9 | ​
Additional valuation allowance on 2018 U.S. deferred tax assets, foreign tax credits and U.S. tax effect on Peruvian deferred taxes | ​ | 10.1 | ​ | 1.0 | ​ | — | ​
Decrease in 2017 U.S. deferred tax asset due to tax rate changes | ​ | — | ​ | (0.2) | ​ | 4.8 | ​
U.S. one time transition tax on accumulated foreign earnings | ​ | — | ​ | 0.4 | ​ | 2.4 | ​
Increase (decrease) in unrecognized tax benefits for uncertain tax positions |  | (2.1) | ​ | — | ​ | 0.7 | ​
Repatriated foreign earnings |  | — | ​ | — | ​ | (2.0) | ​
Amounts (over) / under provided in prior years |  | (1.1) | ​ | (1.3) | ​ | (0.1) | ​
Other |  | (0.3) | ​ | 0.1 | ​ | (1.4) | ​
Effective income tax rate |  | 39.0 | % | 40.7 | % | 69.2 | %
(1) | Foreign tax at other than statutory rates, net of foreign tax credit benefit, also includes the effects of permanent differences in Peru and Mexico, that are determined at the local statutory rate.
​ 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 rate for Mexico was 30%. The United States tax rate was 21% in 2019 and 2018, and 35% for 2017. The Peruvian tax rate was 29.5% for the three years presented above. While the largest components of income taxes are the Peruvian and Mexican taxes, the Company is a domestic U.S. entity. Therefore, the rate used in the above reconciliation is the U.S. statutory rate. ​ 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. ​ Deferred taxes include the U.S., Peruvian and Mexican tax effects of the following types of temporary differences and carryforwards: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | At December 31,
(in millions) |  | 2019 |  | 2018
Assets: | ​ | ​ | ​ | ​ | ​ | ​
Inventories | ​ | $ | 55.7 | ​ | $ | 61.5
Capitalized exploration expenses | ​ |  | 14.0 | ​ |  | 11.1
U.S. foreign tax credit carryforward, net of FIN 48 liability | ​ |  | 731.8 | ​ |  | 483.4
U.S. tax effect of Peruvian deferred tax liability | ​ |  | 131.3 | ​ |  | 165.1
Provisions | ​ |  | 145.0 | ​ |  | 155.0
Mexican tax on consolidated dividends | ​ | ​ | 9.0 | ​ | ​ | 14.8
Deferred workers participation | ​ | ​ | 24.7 | ​ | ​ | 27.0
Accrued salaries, wages and vacations | ​ | ​ | 10.0 | ​ | ​ | 9.1
Sales price adjustment (PUI) | ​ | ​ | 3.0 | ​ | ​ | 2.7
Social responsibility expenses | ​ | ​ | 2.1 | ​ | ​ | 2.1
Deferred charges | ​ | ​ | 14.5 | ​ | ​ | 6.1
Valuation allowance on U.S. deferred tax assets, foreign tax credits and U.S. tax effect on Peruvian deferred | ​ | ​ | (1,097.0) | ​ | ​ | (819.1)
Other | ​ |  | 9.9 | ​ |  | 10.1
Total deferred tax assets | ​ |  | 54.0 | ​ |  | 128.9
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | At December 31,
(in millions) |  | 2019 |  | 2018
Liabilities: | ​ | ​ | ​ | ​ | ​ | ​
Property, plant and equipment | ​ |  | (45.4) | ​ |  | (137.3)
Other | ​ |  | (3.0) | ​ |  | (0.4)
Total deferred tax liabilities | ​ |  | (48.4) | ​ |  | (137.7)
Total net deferred tax (liabilities) / assets | ​ | $ | 5.6 | ​ | $ | (8.8)
​ The valuation allowance increased by $277.9 million over 2018, mostly due to the valuation of unutilized Foreign Tax Credits generated in 2019 and the valuation of Foreign Tax Credits that were not utilized in the settlement of the 2011-2013 IRS field audit. The Peru branch operations are taxed in the U.S. as a flow through entity to SCC. Prior to 2017 U.S. Tax Reform, the U.S. corporate income tax rate was 35% on the Peru earnings, which enabled the company to use more currently generated foreign tax credits. Since tax reform reduced the U.S. tax rate to 21%, there is less U.S. income tax to absorb currently generated FTC’s or carryforwards. Additionally, allowable expenses in the U.S. for percentage depletion and U.S. sourced interest expense on debt reduced the branch income subject to U.S. tax, further limiting utilization of foreign tax credits. ​ U.S. Tax Matters— ​ As of December 31, 2019, the Company considers its ownership of the stock of Minera Mexico to be essentially permanent in duration. As of December 31, 2019, $1,106.7 million of the Company´s total cash, cash equivalents, restricted cash and short-term investments of $2,005.8 million were held by foreign subsidiaries. The cash, cash equivalents and short-term investments maintained in our foreign operations are generally used to cover local operating and investment expenses. At December 31, 2017, Minera Mexico had determined that it had earnings available for dividends to the United States of $555.5 million. The 2017 U.S. tax reform introduced a one-time transition tax that is based upon the higher of the Company’s total accumulated post-1986 deferred foreign income as of November 2, 2017 or December 31, 2017 estimated to be $8.9 billion, the majority of which was previously considered to be indefinitely reinvested and accordingly, no U.S. federal and state income taxes were provided. During 2018, the Company finalized its transition tax at $153.1 million, which was fully offset by foreign tax credits. Upon enactment of the 2017 U.S. tax reform, the Company had calculated and recorded in 2017 a provisional amount of $181.1 million and reduced it by $28 million in 2018 when the calculation was finalized. The Company also finalized its calculation of the total accumulated post-1986 deferred foreign income for the applicable entities and amounts held in liquid and non-liquid deferred income. The Company has determined that as of December 31,2019, a deferred tax asset of $0.4 billion exists with respect to its investment in foreign subsidiaries. Tax accounting guidance provided in ASC 740 requires this asset to be recognized only if the basis difference will reverse in the foreseeable future. Management has no plans that would result in the reversal of this temporary difference and consequently no deferred tax asset has been recorded. Future dividends from these subsidiaries are no longer subject to federal income tax in the U.S., and the Company incurs no state income tax liability. Additionally there are no withholding taxes due to the tax treaty between the United States and Mexico. Earnings from the Company’s Peruvian branch are not subject to transition taxes since they are taxed in the United States on a current basis. ​ At December 31, 2019, there were $790.2 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, 2019. These credits will expire as follows: ​
​ | ​ | ​ | ​
Year |  | Amount
2024 | ​ |  | 39.4
2025 | ​ |  | 102.0
2026 | ​ | ​ | 189.5
2027 | ​ | ​ | 105.6
2028 | ​ | ​ | 159.6
2030 | ​ | ​ | 194.1
Total | ​ | $ | 790.2
​ These foreign tax credits are presented above on a gross basis and have not been reduced here for any unrecognized tax benefits. These foreign tax credits have been adjusted to include the 2016 Net Operating Loss carryback in the U.S. jurisdiction, increasing foreign tax credits by approximately $15.9 million. In accordance with ASU 2013-11 the Company has recorded $58.4 million of an unrecognized tax benefit as an offset to the Company’s deferred tax asset for foreign tax credits. The remaining foreign tax credits of $731.8 million are being re-valued to zero at December 31, 2019. It is the opinion of management that with the reduction in the U.S. corporate tax rate to 21% and the corporate tax rates in Mexico of 30% and in Peru at 29.5%, it is unlikely the excess foreign tax credits can be utilized. Additionally, foreign dividends will no longer be taxed in the U.S. thereby reducing the U.S. tax on the foreign source income that the credits can be used to offset. ​ Peruvian Tax Matters— ​ Royalty mining charge: The 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. The minimum royalty charge is recorded as cost of sales and those amounts assessed at higher rates are included in the income tax provision. The Company has accrued $42.3 million, $32.9 million and $23.4 million of royalty charges in 2019, 2018 and 2017, respectively, of which $14.2 million, $9.0 million and $2.5 million were included in income taxes in 2019, 2018 and 2017, respectively. ​ Peruvian special mining tax: This tax is based on operating income with graduated rates increasing from 2% to 8.4%. The Company recognized $38.1 million, $30.6 million and $23.3 million in 2019, 2018 and 2017, respectively, with respect to this tax. These amounts are included as “income taxes” in the consolidated statement of earnings. ​ Mexican Tax Matters— ​ In 2013, the Mexican Congress enacted tax law changes that became effective on January 1, 2014. Among other effects, the amounts that Minera Mexico recorded during 2019 were: ​
● | Mining royalty at the rate of 7.5% on taxable earnings before taxes: $61.6 million.
● | Additional royalty of 0.5% over gross income from sales of gold, silver and platinum: $0.9 million.
On December 28, 2018, the Federal Revenue Law for fiscal year 2019, was published in the Federal Official Gazette, effective as of January 1, 2019. The main tax matters are reported as follows: ​ The option regarding the benefit of offsetting recoverable balances derived from different federal tax liabilities (e. g. income taxes versus value added tax (VAT)), whether from their own tax obligations or from withholding taxes to third parties, (“universal basis”) was eliminated. ​ Therefore, effective January 1, 2019, taxpayers will only be able to offset their recoverable balances against those they must pay for their own tax liabilities, including ancillary charge (restatement for inflation and surcharges). ​ As a consequence of the change mentioned in the previous paragraph, taxpayers will only be able to credit their recoverable balance against their own VAT payable in subsequent months until its exhaustion, or request for a tax refund in full on such recoverable balance. ​ Notwithstanding the above, the Mexican tax authorities issued a new rule where the taxpayers had the possibility to apply in 2019 the benefit of offsetting recoverable balances from different tax liabilities (VAT versus Income Tax or Income Tax versus VAT) generated up to December 31, 2018, against those recoverable balances for which no offsetting had been made or no tax refund had been previously requested. Based on such rule, taxpayers may offset recoverable balances from their own tax liabilities generated up to December 31, 2018, against those taxes they must pay for their own tax liabilities derived from different federal taxes generated in 2019, including ancillary charges. ​ The possibility to offset withholding taxes to third parties against taxpayers own tax liabilities is also eliminated. ​ Effective January 1 2019, the annual income tax withholding rate applicable to interests paid by financial entities to individuals and companies residents in Mexico increased from 0.46% in fiscal year 2018, to 1.04% for fiscal year 2019. ​ On December 31, 2018, the decree of tax incentives of the Northern Region of Mexico was published in the Official Gazette intending to promote and develop an economic plan for this zone of the country. Such decree provides for a reduction of the income tax at a rate of 20% (in general terms) and the value added tax at a rate of 8%, by means of a tax credit for such purposes, applicable to business activities carried out by individuals, companies and permanent establishments located in the specified territories. These tax incentives are effective from January 1, 2019, and shall be in force in fiscal years 2019 and 2020. ​ Accounting for Uncertainty in Income Taxes— ​ The total amount of unrecognized tax benefits in 2019, 2018 and 2017, was as follows (in millions): ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2019 |  | 2018 |  | 2017
Unrecognized tax benefits, opening balance | ​ | $ | 214.5 | ​ | $ | 214.5 | ​ | $ | 304.0
Gross increases—tax positions in prior period | ​ |  | (7.5) | ​ |  | — | ​ |  | (89.5)
Gross increases—current-period tax positions | ​ |  | (4.2) | ​ |  | — | ​ |  | —
Decreases related to settlements with taxing authorities | ​ |  | (144.4) | ​ |  | — | ​ |  | —
​ | ​ |  | (156.1) | ​ |  | — | ​ |  | (89.5)
Unrecognized tax benefits, ending balance | ​ | $ | 58.4 | ​ | $ | 214.5 | ​ | $ | 214.5
​ The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $10.5 million at December 31, 2019 for unrecognized tax benefits in the Peruvian jurisdiction. Any recognition of unrecognized tax benefits within the U.S. jurisdiction would not affect the effective tax rate as long as the Company continues to value U.S. deferred tax assets including foreign tax credits. The Company has no unrecognized Mexican tax benefits. ​ The Company effectively settled and closed the U.S. 2011-2013 IRS field audit in the second quarter of 2019. The Company’s U.S. IRS audit of 2014 -2016 commenced in 2019. ​ As of December 31, 2019, the Company’s liability for uncertain tax positions included accrued interest and penalties in the Peruvian jurisdiction of $ 10.5 million. As of December 31, 2018 and December 31, 2017 the Company’s liability for uncertain tax positions included U.S. accrued interest and penalties of $1.9 million. ​ The following tax years remain open to examination and adjustment in the Company’s three major tax jurisdictions: ​
​ | ​ | ​
Peru: |  | 2014 and all subsequent years
U.S.: | ​ | 2014 and all subsequent years
Mexico: | ​ | 2014 and all subsequent years
​ Management does not expect that any of the open years will result in a cash payment within the U.S. jurisdiction in the upcoming twelve months ending December 31, 2020. Management expects that $9.8 million in cash payments in the Peruvian jurisdiction will be paid within the upcoming twelve months ending December 31, 2020. The Company’s reasonable expectations about future resolutions of uncertain items did not materially change during the year ended December 31, 2019.

X
- References No definition available. + Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration