Taxation

Adecoagro is subject to the applicable general tax regulations in Luxembourg.

The Group’s income tax has been calculated on the estimated assessable taxable results for the year at the rates prevailing in the respective foreign tax jurisdictions. The subsidiaries of the Group are required to calculate their income taxes on a separate basis according to the rules and regulations of the jurisdictions where they operate. Therefore, the Group is not legally permitted to compensate subsidiaries’ losses against subsidiaries’ income. The details of the provision for the Group’s consolidated income tax are as follows:



	2018		2017 (*)		2016 (*)
Current income tax	(2,846	)	(13,425	)	(21,505	)
Deferred income tax	3,870		18,417		8,606
Income tax benefit / (expense)	1,024		4,992		(12,899	)

(*) Prior periods have been recast to reflect the Company's change in accounting policy for Investment properties as described in Note 33.

The statutory tax rate in the countries where the Group operates for all of the years presented are:



Tax Jurisdiction	Income Tax Rate
Argentina (i)	30	%
Brazil	34	%
Uruguay	25	%
Spain	25	%
Luxembourg	26	%

(i) During 2017, the Argentine Government introduced changes in the income tax. The income tax rate will be reduced to 30% for the years 2018 and 2019, and to 25% from 2020 onwards. A new tax on dividends is created with a rate of 7% for the years 2018 and 2019, and 13% from 2020 onwards. Considering 2018 resulted in losses for Argentine subsidiaries, no deferred income tax liability was recognized for future tax dividends.

Deferred tax assets and liabilities of the Group as of December 31, 2018 and 2017, without taking into consideration the offsetting of balances within the same tax jurisdiction, will be recovered or settled as follows:



	2018		2017
Deferred income tax asset to be recovered after more than 12 months	76,225		97,992
Deferred income tax asset to be recovered within 12 months	62,626		20,191
Deferred income tax assets	138,851		118,183

Deferred income tax liability to be settled after more than 12 months	(289,158	)	(91,742	)
Deferred income tax liability to be settled within 12 months	(1,673	)	(6,090	)
Deferred income tax liability	(290,831	)	(97,832	)
Deferred income tax (liability) / assets, net	(151,980	)	20,351

The gross movement on the deferred income tax account is as follows:



	2018		2017
Beginning of year	20,351		10,354
Tax effect on the opening net book amount for the application of IAS 29	(64,208	)	—
Exchange differences	16,878		295
Effect of adoption of fair value valuation for farmlands	(139,223	)	—
Others	(970	)	—
Tax (charge) relating to cash flow hedge (i)	11,322		(8,715	)
Income tax benefit	3,870		18,417
End of year	(151,980	)	20,351

(i) Relates to the gain or loss before income tax of cash flow hedge recognized in other comprehensive income amounting to US$ 75,822 for the year ended December 31, 2018 (2017: US$ (565)); net of the reclassification from Equity to Income Statements of US$ (32,305) for the year ended December 31, 2018 (2017: US$ (20,758))

The movement in the deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:



Deferred income tax liabilities	Property, plant and equipment		Investment property		Biological assets		Others		Total
At January 1, 2017	58,832		13,543		14,122		17,475		103,972
Charged / (credited) to the statement of income	11,411		1,076		3,707		(15,583	)	611
Exchange differences	(4,437	)	(1,990	)	(1,057	)	733		(6,751	)
At December 31, 2017	65,806		12,629		16,772		2,625		97,832
Charged / (credited) to the statement of income	31,237		2,730		(10,438	)	1,570		25,099
Tax effect on the opening net book amount for the application of IAS 29	63,357		—		164		687		64,208
Effect of adoption of fair value valuation for farmlands	139,223		—		—		—		139,223
Exchange differences	(29,040	)	(3,405	)	(3,032	)	(54	)	(35,531	)
At December 31, 2018	270,583		11,954		3,466		4,828		290,831



Deferred income tax assets	Provisions		Tax loss carry forwards		Equity-settled share-based compensation		Biological assets	Others		Total
At January 1, 2017	2,431		97,118		5,640		—	9,137		114,326
Charged / (credited) to the statement of income	(705	)	11,907		41		—	7,785		19,028
Tax charge relating to cash flow hedge	—		(8,715	)	—		—	—		(8,715	)
Exchange differences	757		(4,193	)			—	(3,020	)	(6,456	)
At December 31, 2017	2,483		96,117		5,681		—	13,902		118,183
(Credited) / charged to the statement of income	2,003		(10,798	)	(379	)	4,572	33,571		28,969
Others	—		—		—		—	(970	)	(970	)
Tax charge relating to cash flow hedge	—		11,322		—		—	—		11,322
Exchange differences	(526	)	(16,421	)	—		22	(1,728	)	(18,653	)
At December 31, 2018	3,960		80,220		5,302		4,594	44,775		138,851

Tax loss carry forwards in Argentina and Uruguay generally expire within 5 years. Tax loss carry forwards in Brazil and Luxembourg do not expire. However, in Brazil, the taxable profit for each year can only be reduced by tax loss carry forward up to a maximum of 30%.

In order to fully realize the deferred tax asset, the Group will need to generate future taxable income in the countries where the tax loss carry forward were incurred. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes that as at December 31, 2018, it is probable that the Group will realize some portion of the deferred tax assets in Brazil and Argentina.

As of December 31, 2018, the Group’s tax loss carry forwards and their corresponding jurisdictions are as follows:



Jurisdiction	Tax loss carry forward	Expiration period
Argentina (1)	83,872	5 years
Brazil	155,124	No expiration date.
Uruguay	4,986	5 years
Luxembourg	28,231	No expiration date.

(1) As of December 31, 2018, the ageing of the determination tax loss carry forward in Argentina is as follows:



Year of generation		Amount
2015		17,536
2016		1,565
2017		15,889
2018		48,882

Deferred income tax assets are recognized for tax loss carry-forwards to the extent that the realization of the related tax benefit through future taxable profits is probable. The Group did not recognize deferred income tax assets of US$ 1.2 million in respect of losses amounting to US$ 4.7 million that can be carried forward against future taxable income.

The tax on the Group’s profit before income tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows:



	2018		2017 (*)		2016 (*)
Tax calculated at the tax rates applicable to profits in the respective countries	2,956		(3,013	)	(7,156	)
Non-deductible items	(2,249	)	(1,406	)	(3,304	)
Non-deductible items – changes in estimates on previous year	—		—		(1,182	)
Effect of the changes in the statutory income tax rate in Argentina	(1,013	)	1,781		—
Unused tax losses	(4,181	)	(2,265	)	—
Tax losses where no deferred tax asset was recognized	(2,368	)	(29	)	(569	)
Non-taxable income	13,069		2,437		—
Previously unrecognized tax losses now recouped to reduce tax expenses	—		7,595		—
Effect of IAS 29 on Argentina´s Shareholder´s equity and deferred income tax	(5,825	)	—		—
Others	635		(108	)	(688	)
Income tax benefit / (expense)	1,024		4,992		(12,899	)