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INCOME AND SOCIAL CONTRIBUTION TAXES | 12 Months Ended
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Dec. 31, 2019
INCOME AND SOCIAL CONTRIBUTION TAXES |
INCOME AND SOCIAL CONTRIBUTION TAXES | NOTE 8 — INCOME AND SOCIAL CONTRIBUTION TAXES In Brazil, income taxes include federal income tax (IR) and social contribution (CS), which represents an additional federal income tax. The statutory rates for income tax and social contribution are 25% and 9%, respectively, and are applicable for the years ended December 31, 2019, 2018 and 2017. The foreign subsidiaries of the Company are subject to taxation at rates ranging between 22.6% and 35.0%, without considering there are subsidiaries abroad with zero tax rate, which have mainly financial activities. The differences between the Brazilian tax rates and the rates of other countries are presented under “Difference in tax rates in foreign companies” in the reconciliation of income tax and social contribution below. a) Reconciliations of income and social contribution taxes at statutory rates to amounts presented in the Statement of Income are as follows:
|  | 2019 |  | 2018 |  | 2017 |
Income (loss) before income taxes |  | 1,674,720 |  | 2,157,431 |  | (43,276) |
Statutory tax rates |  | 34 | % | 34 | % | 34 | %
Income and social contribution taxes at statutory rates |  | (569,405) |  | (733,527) |  | 14,714 |
Tax adjustment with respect to: |  |  |  |  |  |  |
- Difference in tax rates in foreign companies |  | 75,428 |  | 663,116 |  | (183,787) |
- Equity in earnings of unconsolidated companies |  | (5,797) |  | 3,448 |  | (11,763) |
- Interest on equity* |  | 69 |  | 128,418 |  | 113 |
- Tax credits and incentives |  | 8,852 |  | 9,531 |  | 23,185 |
- Recognition of previously unrecognized tax losses |  | 1,097 |  | 47,545 |  | — |
- Capital Gain** |  | — |  | — |  | (98,290) |
- Other permanent differences, net |  | 31,923 |  | 50,420 |  | (39,563) |
Income and social contribution taxes |  | (457,833) |  | 168,951 |  | (295,391) |
Current |  | (240,400) |  | (629,209) |  | (313,758) |
Deferred |  | (217,433) |  | 798,160 |  | 18,367 |
(*) Brazilian Law 9,249/95 provides that a company may, at its sole discretion, consider dividends distributions to shareholders to be considered as interest on own capital — subject to specific limitations - which has the effect of a taxable deduction in the determination of income tax and social contribution. The limitation is the greater of (i) shareholders’ equity multiplied by the TJLP (Long Term Interest Rate) rate or (ii) 50% of the net income in the fiscal year. This expense is not recognized for the purpose of preparing the financial statements and therefore does not impact net income. (**) The merger of Gerdau Aços Especiais S.A. and Gerdau América Latina Part. S.A. at Gerdau S.A. generated a taxable capital gain. b) Breakdown and changes in deferred income and social contribution tax assets and liabilities at statutory tax rates:
|  | Balance as of |  | Recognized |  |  |  | Comprehensive |  | Balance as of
|  | December 31, 2018 |  | in income |  | Others |  | Income |  | December 31, 2019
Tax loss carryforward |  | 1,339,933 |  | 4,781 |  | (36,226) |  | 32,976 |  | 1,341,464
Social contribution tax losses |  | 337,258 |  | 13,552 |  | — |  | — |  | 350,810
Provision for tax, civil and labor liabilities |  | 270,417 |  | (27,848) |  | — |  | 225 |  | 242,794
Benefits granted to employees |  | 286,494 |  | (29,739) |  | — |  | 37,276 |  | 294,031
Other temporary differences |  | 525,818 |  | 73,067 |  | — |  | (23,166) |  | 575,719
Deferred exchange variance* |  | 1,284,377 |  | (106,640) |  | — |  | (309) |  | 1,177,428
Provision for losses |  | 83,837 |  | (75,142) |  | — |  | 14,923 |  | 23,618
Fair value adjustments on businesses acquired |  | (372,448) |  | (69,464) |  | — |  | (10,146) |  | (452,058)
|  | 3,755,686 |  | (217,433) |  | (36,226) |  | 51,779 |  | 3,553,806
Non-current assets |  | 3,874,054 |  |  |  |  |  |  |  | 4,071,219
Non-current liabilities |  | (118,368) |  |  |  |  |  |  |  | (517,413)
* Corresponds to deferred taxes over foreign exchange gains and loss which certain subsidiaries elected to tax on a cash basis
|  | Balance as of |  | Recognized |  |  |  | Comprehensive |  | Balance as of
|  | December 31, 2017 |  | in income |  | Others |  | Income |  | December 31, 2018
Tax loss carryforward |  | 973,638 |  | 341,664 |  | 36,445 |  | (11,814) |  | 1,339,933
Social contribution tax losses |  | 355,782 |  | (18,524) |  | — |  | — |  | 337,258
Provision for tax, civil and labor liabilities |  | 275,463 |  | (5,214) |  | 168 |  | — |  | 270,417
Benefits granted to employees |  | 282,803 |  | (16,564) |  | 67,184 |  | (46,929) |  | 286,494
Other temporary differences |  | 410,300 |  | 93,094 |  | 17,177 |  | 5,247 |  | 525,818
Deferred exchange variance* |  | 1,060,527 |  | 223,850 |  | — |  | — |  | 1,284,377
Provision for losses |  | 110,728 |  | (33,165) |  | (12) |  | 6,286 |  | 83,837
Fair value adjustments on businesses acquired |  | (497,534) |  | 213,019 |  | (89,859) |  | 1,926 |  | (372,448)
|  | 2,971,707 |  | 798,160 |  | 31,103 |  | (45,284) |  | 3,755,686
Non-current assets |  | 3,054,393 |  |  |  |  |  |  |  | 3,874,054
Non-current liabilities |  | (82,686) |  |  |  |  |  |  |  | (118,368)
*Corresponds to deferred taxes over foreign exchange gains and loss which certain subsidiaries elected to tax on a cash basis
|  |  |  |  |  | Effect of selling |  |  |  |
|  | Balance as of |  | Recognized |  | of subsidiary |  | Comprehensive |  | Balance as of
|  | January 1, 2017 |  | in income |  | and Others |  | Income |  | December 31, 2017
Tax loss carryforward |  | 874,357 |  | 157,402 |  | (22,362) |  | (35,759) |  | 973,638
Social contribution tax losses |  | 311,892 |  | 58,963 |  | (15,073) |  | — |  | 355,782
Provision for tax, civil and labor liabilities |  | 755,198 |  | (479,836) |  | 101 |  | — |  | 275,463
Benefits granted to employees |  | 432,537 |  | (48,466) |  | (9,363) |  | (91,905) |  | 282,803
Other temporary differences |  | 350,762 |  | (81,627) |  | 92,174 |  | 48,991 |  | 410,300
Deferred exchange variance* |  | 1,251,542 |  | (199,200) |  | 8,185 |  | — |  | 1,060,527
Provision for losses |  | 112,936 |  | (2,208) |  | — |  | — |  | 110,728
Fair value adjustments on businesses acquired |  | (1,077,430) |  | 613,339 |  | (51,606) |  | 18,163 |  | (497,534)
|  | 3,011,794 |  | 18,367 |  | 2,056 |  | (60,510) |  | 2,971,707
Non-current assets |  | 3,407,230 |  |  |  |  |  |  |  | 3,054,393
Non-current liabilities |  | (395,436) |  |  |  |  |  |  |  | (82,686)
*Corresponds to deferred taxes over foreign exchange gains and loss which certain subsidiaries elected to tax on a cash basis The recoverability analysis of deferred tax balances related to tax loss carryforward and social contribution tax losses performed by the Company are based on its business plans and aligned with other projections and analysis performed by the Company as, for example, the impairment of assets tests. c) Estimated recovery and reversal of income and social contribution tax assets and liabilities are as follows:
|  | Assets
|  | 2019 |  | 2018
2019 |  | — |  | 609,546
2020 |  | 605,657 |  | 585,047
2021 |  | 467,153 |  | 338,896
2022 |  | 422,863 |  | 306,130
2023 |  | 464,514 |  | 373,875
2024 and after |  | 2,111,032 |  | 1,660,560
|  | 4,071,219 |  | 3,874,054
|  | Liabilities
|  | 2019 |  | 2018
2019 |  | — |  | (18,055)
2020 |  | — |  | (25,144)
2021 |  | (98,449) |  | (13,548)
2022 |  | (110,031) |  | (14,009)
2023 |  | (90,703) |  | (11,210)
2024 and after |  | (218,230) |  | (36,402)
|  | (517,413) |  | (118,368)
d) Unrecognized deferred income tax assets: Deferred tax assets have not been recognized in respect of the following items, because it is not probable that future taxable profit will be available against which the Company can use the benefits therefrom in some companies in Brazil. The Company has not recorded a portion of tax assets of R$ 263,491 (R$ 265,403 as of December 31, 2018), which do not have an expiration date. The subsidiaries abroad had R$ 668,729 (R$ 398,364 as of December 31, 2018) of tax credits on capital losses which deferred tax assets have not been booked and which expire between 2029 and 2037 and also several tax losses of state credits in the amount of R$ 1,384,598 (R$ 795,775 as of December 31, 2018), which expire at various dates between 2020 and 2039.

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