17. Current Taxes and Deferred Taxes:

(a) Current Tax:

As of each year end, the Bank and its subsidiaries have established a First Category Income Tax Provision of MCh$122,644 and MCh$108,844 as of December 31, 2016 and 2017, determined in accordance with current tax laws. The net tax to be paid or recovered is detailed as follows:

	2016		2017
	MCh$		MCh$

Income taxes	122,644		108,844
Less:
Monthly prepaid taxes (PPM)	(126,266	)	(123,717	)
Credit for training expenses	(2,031	)	(2,036	)
Real Estate Tax	—		—
Other	(1,004	)	(2,670	)

Total tax payable (receivable), net	(6,657	)	(19,579	)

	2016	2017
	MCh$	MCh$

Current tax assets	6,657	23,032
Current tax liabilities	—	(3,453	)

Total tax receivable, net	6,657	19,579

(b) Income Tax:

The Bank’s tax expense recorded for the years ended December 31, 2015, 2016 and 2017 is detailed as follows:

	2015		2016		2017
	MCh$		MCh$		MCh$
Income tax expense:
Current year taxes	122,147		134,759		105,024
Tax from previous period	(1,851	)	1,030		(1,401	)

Subtotal	120,296		135,789		103,623
(Credit) charge for deferred taxes:
Origin and reversal of temporary differences	(18,964	)	(26,044	)	20,043
Effect of changes in tax rate	(18,234	)	(9,158	)	(5,729	)

Subtotal	(37,198	)	(35,202	)	14,314
Other	(777	)	(375	)	(2,576	)

Net charge to income for income taxes	82,321		100,212		115,361


Tax Rate	22.50	%	24.00	%	25.50	%

The following table reconciles the income tax rate to the effective rate applied to determine the Bank’s income tax expense as of December 31, 2015, 2016 and 2017:

	2015				2016				2017
	Tax rate %		MCh$		Tax rate %		MCh$		Tax rate %		MCh$
Income tax calculated on net income before tax	22.50		155,751		24.00		162,063		25.50		175,298
Subordinated Debt Payment (*)	(4.57	)	(31,638	)	(5.05	)	(34,092	)	(5.67	)	(38,997	)
Additions or deductions (**)	(3.91	)	(27,032	)	(3.90	)	(26,332	)	(2.88	)	(19,794	)
Tax from previous years	(0.27	)	(1,851	)	0.15		1,030		(0.20	)	(1,401	)
Effect of changes in tax rate	(2.63	)	(18,234	)	(1.36	)	(9,158	)	(0.83	)	(5,729	)
Other	0.77		5,325		1.00		6,701		0.87		5,984

Effective rate and income tax expense	11.89		82,321		14.84		100,212		16.79		115,361

(*) The tax benefit associated with the dividend payment made to SAOS S.A., as payment of the subordinated debt held with the Central Bank, should disappear as the liability of SM-Chile with the Central Bank is completely paid off.

(**) The deductions of the tax rate for 2015, 2016 and 2017 mainly relate to permanent differences between tax and financial accounting rules.

On September 29, 2014, Law 20,780, published in the Diario Oficial of Chile (equivalent to the “Federal Register”), amended the System of Income Taxation and introduced various adjustments to the tax system.

Additionally, on February 8, 2016 Law 20,899 was published, which established that open corporations must apply the tax regime of the first category with partial deduction of the credit in the final taxes. A regime characterized by the fact that shareholders will only be entitled to allocate against personal taxes (Global Supplementary or Additional), 65% of the first category tax paid by the company.

Law 20,780 establishes a gradual increase of rates to the first category tax regime as follows:

Year	Rate
2014	21.0	%
2015	22.5	%
2016	24.0	%
2017	25.5	%
2018	27.0	%

Additionally, according to No. 11 of Article 1 of Law 20,780, as of January 1, 2017, the rate of sole tax has been increased to rejected expenses of article 21 from 35% to 40%.

(b) Effect of deferred taxes on income and equity:

The effects of deferred taxes on assets, liabilities and income accounts are detailed as follows:

	Balance as of December 31,		Effect				Balance as of December 31,		Effect				Balance as of December 31,		Effect				Balance as of December
	2014		Income		Equity		2015		Income		Equity		2016		Income		Equity		31, 2017
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$		MCh$
Debit differences:
Allowances for loan losses	100,734		14,804		—		115,538		12,181		—		127,719		(12,276	)	—		115,443
Obligations with agreements to repurchase	(968	)	—		—		(968	)	—		—		(968	)	—		—		(968	)
Personnel provisions	9,597		(1,447	)	—		8,150		3,081		—		11,231		1,290		—		12,521
Staff vacations	5,489		779		—		6,268		406		—		6,674		234		—		6,908
Accrued interest and indexation adjustments from past due loans	3,738		286		—		4,024		(669	)	—		3,355		59		—		3,414
Staff severance indemnities provision	2,344		(117	)	9		2,236		(337	)	(45	)	1,854		(352	)	(45	)	1,457
Provisions of credit card expenses	10,637		2,991		—		13,628		(1,169	)	—		12,459		(3,504	)	—		8,955
Provisions of accrued expenses	11,466		220		102		11,788		2,701		—		14,489		1,869		—		16,358
Leasing	—		18,239		—		18,239		18,880		—		37,119		(4,570	)	—		32,549
Other adjustments	4,009		258		—		4,267		975		—		5,242		1,411		1		6,654

Total debit differences	147,046		36,013		111		183,170		36,049		(45	)	219,174		(15,839	)	(44	)	203,291

Credit differences:
Investments with agreement to repurchase	125		—		—		125		—		—		125		—		—		125
Depreciation of property and equipment and investment properties	14,304		(1,141	)	—		13,163		(1,348	)	—		11,815		2,466		—		14,281
Adjustment for valuation financial assets available-for-sale	11,310		—		2,357		13,667		—		(12,575	)	1,092		1		1,299		2,392
Hedge cash adjustment	259		—		—		259		—		—		259		—		—		259
Leasing equipment	1,898		(2,992	)	—		(1,094	)	—		—		(1,094	)	—		—		(1,094	)
Transitory assets	3,633		162		—		3,795		977		—		4,772		714		—		5,486
Derivative instruments adjustments	5,983		4,296		—		10,279		(2,572	)	—		7,707		(3,329	)	—		4,378
Assets received in lieu of payments	(1,434	)	(196	)	—		(1,630	)	240		—		(1,390	)	830		—		(560	)
Accrued interest to effective rate	2,303		257		—		2,560		(313	)	—		2,247		(644	)	—		1,603
Intangible assets amortization	7,141		(501	)	—		6,640		(550	)	—		6,090		(587	)	—		5,503
Other adjustments	7,284		(1,070	)	—		6,214		4,413		1		10,628		(976	)	1		9,653

Total credit differences	52,806		(1,185	)	2,357		53,978		847		(12,574	)	42,251		(1,525	)	1,300		42,026

Total Assets (Liabilities), net	94,240		37,198		(2,246	)	129,192		35,202		12,529		176,923		(14,314	)	(1,344	)	161,265