

28. INCOME TAXES

Components of Income Tax Expense



	2017			2016
Current tax expense (recovery)
Recognized in profit or loss in current year	$	66,345		$	44,751
Adjustments recognized in the current year with respect to prior years	(3,468		)	(720		)
	62,877			44,031
Deferred tax expense (recovery)
Deferred tax (recovery) expense recognized in the current year	(898		)	27,942
Adjustments recognized in the current year with respect to prior years	(1,539		)	1,124
Adjustments to deferred tax attributable to changes in tax rates and laws	—			1,302
Increase in deferred tax liabilities due to tax impact of reversals of mineral properties, plant, and equipment impairments (Note 10,11)	17,770			—
Recognition of previously unrecognized deferred tax assets	(10,275		)	—
Benefit from previously unrecognized losses, and other temporary differences	(6,487		)	(7,861		)
Increase in deferred tax liabilities due to tax impact of net realizable value (charge) reversal to inventory (Note 21)	(2,414		)	7,908
	(3,843		)	30,415
Income tax expense	$	59,034		$	74,446

Income tax expense differs from the amount that would result from applying the Canadian federal and provincial income tax rates to earnings before income taxes. These differences result from the items shown on the following table which results in an effective tax rate that varies considerably from the comparable period. The main factors that affected the effective tax rate for the year ended December 31, 2017 and the comparable period of 2016 were foreign exchange fluctuations, changes in the non-recognition of certain deferred tax assets, mining taxes paid, and withholding taxes on payments from foreign subsidiaries. The Company continues to expect that these and other factors will continue to cause volatility in effective tax rates in the future.

Reconciliation of Effective Income Tax Rate



	2017			2016
Earnings before taxes and non-controlling interest	$	182,485		$	176,271
Statutory Canadian income tax rate	26.00		%	26.00		%
Income tax expense based on above rates	$	47,446		$	45,830
Increase (decrease) due to:
Non-deductible expenditures	4,618			5,082
Foreign tax rate differences	3,644			9,729
Change in net deferred tax assets not recognized:
- Argentina exploration expenditures	2,051			1,794
- Other deferred tax assets	(10,752		)	(14,406		)
Non-taxable portion of net earnings of affiliates	(4,055		)	(4,852		)
Changes to temporary differences	—			1,429
Tax on sale of royalty	1,400			—
Effect of other taxes paid (mining and withholding)	20,065			13,678
Effect of foreign exchange on tax expense	(3,928		)	10,462
Non-taxable impact of foreign exchange	2,937			3,861
Change in current tax expense estimated for prior years	(3,503		)	—
Other	(889		)	1,839
Income tax expense	$	59,034		$	74,446
Effective income tax rate	32.35		%	42.23		%

Deferred tax assets and liabilities

The following is the analysis of the deferred tax assets (liabilities) presented in the consolidated financial statements:



	2017			2016
Net deferred tax liability, beginning of year	$	(169,136	)	$	(138,397	)
Recognized in net earnings for the year	3,843			(30,415		)
Reduction due to Mexican de-consolidation payments applied to current tax	(3,231		)	(383		)
Other	(25		)	59
Net deferred liability, end of year	$	(168,549	)	$	(169,136	)
Deferred tax assets	2,679			1,727
Deferred tax liabilities	(171,228		)	(170,863		)
Net deferred tax liability	$	(168,549	)	$	(169,136	)

Components of deferred tax assets and liabilities

The deferred tax assets (liabilities) are comprised of the various temporary differences as detailed below:



	2017			2016
Deferred tax assets (liabilities) arising from:
Closure and decommissioning costs	$	7,019		$	7,133
Tax losses and mining tax credits	24,014			26,646
Deductible Mexican mining taxes	2,792			2,344
Tax credit resulting from Mexican de-consolidation	1,385			4,790
Accounts payable and accrued liabilities	3,047			2,373
Trade and other receivables	21,527			10,526
Provision for doubtful debts and inventory adjustments	(14,517		)	(16,261		)
Mineral properties, plant, and equipment	(186,641		)	(192,046		)
Estimated sales provisions	(28,726		)	(14,907		)
Other temporary differences and provisions	1,551			266
Net deferred tax liability	$	(168,549	)	$	(169,136	)

At December 31, 2017, the net deferred tax liability above included the deferred tax benefit of $24.0 million related to tax losses of approximately $80.6 million. These losses will begin to expire after the 2024 year end, if unused.

At December 31, 2016, the net deferred tax liability above included the deferred tax benefit of $26.6 million related to tax losses of approximately $89.0 million. These losses will begin to expire after the 2024 year end, if unused.

Unrecognized deductible temporary differences, unused tax losses and unused tax credits

Deductible temporary differences, unused tax losses and unused tax credits for which no deferred tax assets have been recognized are attributable to the following:



	2017		2016
Tax loss (revenue in nature)	$	165,180	$	171,077
Net tax loss (capital in nature)	15,423		18,759
Resource pools and other tax credits	18,609		20,116
Financing fees	1,464		1,803
Mineral properties, plant, and equipment	20,441		34,268
Closure and decommissioning costs	42,484		34,809
Exploration and other expenses not currently deductible	54,672		62,503
Intercompany debt	8,061		34,769
Doubtful debt and inventory	16,602		13,997
Deferred income and estimated sales	—		924
Deductible Mexican mining taxes	77		335
Payroll and vacation accruals	2,015		3,174
Other temporary differences	2,601		2,532
	$	347,629	$	399,066

Included in the above amounts are operating losses, which if not utilized will expire as follows:



At December 31, 2017,
	Canada		US		Peru		Mexico		Barbados		Argentina		Total
2018	—		120		—		—		6		50		176
2019	—		86		—		—		4		90		180
2020 – and after	122,853		13,289		—		20,925		93		7,664		164,824
Total tax losses	$	122,853	$	13,495	$	—	$	20,925	$	103	$	7,804	165,180



At December 31, 2016,
	Canada		US		Peru		Mexico		Barbados		Argentina		Total
2017	—		—		—		—		5		—		5
2018	—		120		—		—		6		7		133
2019 – and after	116,009		13,642		39,057		2,160		47		24		170,939
Total tax losses	$	116,009	$	13,762	$	39,057	$	2,160	$	58	$	31	$	171,077

Taxable temporary differences associated with investment in subsidiaries

As at December 31, 2017, taxable temporary differences of $88.3 million (2016 – $60.4 million) associated with the investments in subsidiaries have not been recognized as the Company is able to control the timing of the reversal of these differences and does not expect them to reverse in the foreseeable future.