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 tax return for AMC for U.S. federal income tax reporting.

In accordance with its policy regarding use of estimates, the Company estimates income taxes currently payable or receivable as well as deferred income tax assets and liabilities attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The Company provides current and deferred income taxes, as if it were filing a separate U.S. federal income tax return.

The components of the provision for income taxes for the three years ended December 31, 2021, are as follows:

The reconciliation of the statutory income tax rate to the effective tax rate for the three years ended December 31, 2021, is as follows (in percentage points):

(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% and the United States tax rate was 21%. 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)	2021		2020
Assets:
Inventories	$	78.0	$	62.4
Capitalized exploration expenses		12.5		13.0
U.S. foreign tax credit carryforward, net of FIN 48 liability		1,479.2		974.1
U.S. tax effect of Peruvian deferred tax liability		75.0		111.2
Provisions		284.5		169.5
Property, plant and equipment		9.5		—
Deferred workers participation		11.1		37.8
Accrued salaries, wages and vacations		8.2		8.5
Sales price adjustment (PUI)		2.6		(5.8)
Social responsibility expenses		5.1		4.3
Deferred charges		31.6		41.8
Valuation allowance on U.S. deferred tax assets, foreign tax credits and U.S. tax effect on Peruvian deferred		(1,820.0)		(1,343.2)
Accrued royalty and special mining tax		23.3		18.3
Other		5.5		1.2
Total deferred tax assets		206.1		93.1

	At December 31,
(in millions)	2021		2020
Liabilities:
Property, plant and equipment		—		(17.2)
Other		(8.2)		(5.3)
Total deferred tax liabilities		(8.2)		(22.5)
Total net deferred tax (liabilities) / assets	$	197.9	$	70.6

The valuation allowance increased by $476.8 million over 2020’s level, which was primarily due to the valuation of unutilized Foreign Tax Credits generated in 2021. The Peru branch operations are taxed in the U.S. as a flow through entity to SCC. Since the Peruvian tax rate of 29.5% now exceeds the U.S. tax rate of 21% it is the opinion of management that it is more likely than not that the benefit of excess credits generated in the current year will not be realizable.

U.S. Tax Matters—

As of December 31, 2021, the Company considers its ownership of the stock of Minera Mexico to be essentially permanent in duration. Income from subsidiaries, such as Minera Mexico, is included in the Global Intangible Low Tax Income or GILTI.

GILTI imposes a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The Company has not had U.S. tax liability from the GILTI inclusion since introduction of this tax in 2018 and does not anticipate a tax in the future because of increased fixed asset amounts and the Mexican tax rate of 30%. No U.S. deferred taxes have been recorded as 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 10% minimum tax 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. Since this tax was imposed in 2018 the Company has had no U.S. tax liability for BEAT 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 yearly basis.

As of December 31, 2021, $1,054.8 million of the Company´s total cash, cash equivalents and short-term investments of $3,488.9 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. The Company has determined that as of December 31, 2021, a deferred tax asset of $0.2 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 may not be 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. Distributions of earnings from the Company's Peruvian branch to the United States are not subject to U.S. taxes on repatriation. The Company's branch operations are not foreign corporations. They are rather mainly comprised of operations that are branches of the Company's U.S. operations and taxed on a current basis.

At December 31, 2021, there were $1,465.0 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, 2021. These credits will expire if not utilized by the end of the years listed below:


Year	Amount
2024		73.1
2025		174.0
2026		96.2
2027		—
2028		175.0
2029		219.9
2030		247.6
2031		479.2
Total	$	1,465.0

These foreign tax credits are presented above on a gross basis and have not been adjusted for any unrecognized tax benefits. In accordance with ASC 740 the Company has recorded a $14.2 million adjustment to its foreign tax credits for unrecognized tax benefits. However, there is no impact to tax expense since the credits were fully valued. The foreign tax credits of $1,479.2 million have a full valuation allowance against them at December 31, 2021. It is the opinion of management that with the reduction in the U.S. corporate tax rate to 21% and considering 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 may no longer be taxed in the U.S. due to the GILTI rules and thereby reducing the U.S. tax on the foreign source income and limiting the ability to utilize foreign tax credits generated before the 2017 Tax Cuts and Jobs Act.

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 $140.8 million, $60.6 million and $42.3 million of royalty charges in 2021, 2020 and 2019, respectively, of which $97.8 million, $31.4 million and $14.2 million were included in income taxes in 2021, 2020 and 2019, respectively.

Peruvian special mining tax: This tax is based on operating income with graduated rates increasing from 2% to 8.4%. The Company recognized $114.0 million, $50.0 million and $38.1 million in 2021, 2020 and 2019, 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 2020 and paid in 2021 were:

●	Mining royalty at the rate of 7.5% on taxable earnings before taxes: $75.3 million.

●	Additional royalty of 0.5% over gross income from sales of gold, silver and platinum: $1.5 million.

On September 8, 2020, the Federal Executive submitted the 2021 Economic Package. The Federal Revenue Law for fiscal year 2021, was published in the Federal Official Gazette in December 8, 2020, effective as of January 1, 2021. Compared to the 2020 economic package, the aforementioned proposal does not include any major changes and mostly addresses administrative and enforcement types of tax issues with few cross-border tax implications and does not include tax increases or new taxes.

Accounting for Uncertainty in Income Taxes—

The total amount of unrecognized tax benefits in 2021, 2020 and 2019, was as follows (in millions):


	2021		2020		2019
Unrecognized tax benefits, opening balance	$	66.1	$	58.4	$	214.5
Gross decreases—tax positions in prior period		(10.9)		—		(7.5)
Gross increases—current-period tax positions		—		7.7		—
Gross decreases—current-period tax positions		(1.1)		—		(4.2)
Decreases related to settlements with taxing authorities		(54.1)		—		(144.4)
		(66.1)		7.7		(156.1)
Unrecognized tax benefits, ending balance	$	—	$	66.1	$	58.4

The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was zero at December 31, 2021. 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 or Peruvian tax benefits as of December 31, 2021.

The Company closed the 2014 through 2016 IRS audit on April 14, 2021. The decrease in unrecognized tax benefits from the audit settlement had no material effect on the Company’s financial statements.

As of December 31, 2021 and December 31, 2020, the Company’s liability for uncertain tax positions did not include accrued interest and penalties in the U.S. jurisdiction. As of December 31, 2019 the Company’s liability for uncertain tax positions included Peruvian accrued interest and penalties of $10.5 million.

The following tax years remain open to examination and adjustment in the Company’s three major tax jurisdictions:


Peru:		2016 and all subsequent years
U.S.:		2017 and all subsequent years
Mexico:		2016 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, 2022.