Industrias Bachoco S.A.B. de C.V. | CIK:0001044896 |

Filed: 4/27/2018

Entity registrant name: Industrias Bachoco S.A.B. de C.V. (CIK: 0001044896)

Generator: DataTracks

SEC filing page: http://www.sec.gov/Archives/edgar/data/1044896/000114420418023204/0001144204-18-023204-index.htm

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ifrs-full:DisclosureOfIncomeTaxExplanatory

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Income Tax

Under the tax legislation in Mexico and the United States of America in effect through December 31, 2017, entities are subject to pay Income Tax (ISR, by its Spanish acronym).

ISR

The Company and each of its subsidiaries file separate income tax returns (including its foreign subsidiary, which files income tax returns in the United States of America, based on its fiscal year ending in April of every year). For the years ended December 31, 2017, 2016 and 2015, the applicable rate under the general tax regime in Mexico is 30%; this rate will be applicable in future years as well. The applicable rate for the Company’s US subsidiary is 38.79% (includes state and federal taxes). On December 22, 2017, the United States government enacted new tax legislation referred to as the Tax Cuts and Jobs Act (the Act). The Act significantly changes U.S. tax law with the most significant change being the reduction of the federal income tax rate for corporations from 35% to 21%, effective beginning January 1, 2018.

As of December 31, 2017, 2016 and 2015, BSACV, the Company’s primary operating subsidiary is subject to the agriculture, cattle-raising, forestry and fishing regime of the ISR law, which is applicable to entities exclusively dedicated to such activities. The ISR Law establishes that such activities are exclusive when no more than 10% of an entity’s total revenues are generated from something other than those activities or from industrialized products.

Tax charged to profit and loss

For the years ended December 31, 2017, 2016 and 2015, the income tax (benefit) expense included in profit and loss is as follows:

	December 31
	2017		2016		2015
Operation in Mexico:
Current ISR		1,512,721		1,215,171		1,291,536
Deferred ISR		(157,646)		264,086		146,595
		1,355,075		1,479,257		1,438,131
Foreign operation:
Current ISR		198,813		45,358		196,954
Deferred ISR		(469,444)		118,818		45,475
Total ISR expense	$	1,084,444		1,643,433		1,680,560

Total income tax expense

The income tax expense attributable to income before income taxes differed from the amount computed by applying the ISR rate of 30% in 2017, 2016 and 2015 due to the items listed below:

	December 31,
	2017					2016					2015
	ISR		Percentage			ISR		Percentage			ISR		Percentage

Expected expense	$	1,811,667		30	%	$	1,678,379		30	%	$	1,650,025		30	%
Increase (decrease) resulting from:
Net effects of inflation		(329,516)		(5)	%		(144,611)		(2)	%		(87,322)		(2)	%
(Non-taxable income) Non-deductible expenses		88,330		1	%		14,550		0	%		(4,882)		(0)	%
Effect of rate difference of foreign subsidiary		702		0	%		21,979		0	%		57,103		1	%
Effect from non-deductible employee benefits		83,953		1	%		71,868		1	%		74,173		1	%
Effect of change of income tax rate in the United States of America		(443,104)		(7)	%		-		-			-		-
Cancellation of loss by acquisition		(129,036)		(2)	%
Other		1,448		0	%		1,268		0	%		(8,537)		0	%
Income tax expense	$	1,084,444		18	%	$	1,643,433		29	%	$	1,680,560		30	%

Deferred income tax

The Company and each one of its subsidiaries determine the deferred taxes that are reflected at a consolidated level on stand-alone basis. BSACV, the main operating subsidiary of the Company, is subject to tax payment under the agriculture, cattle-raising, forestry and fishing regime, in which the tax base for ISR is determined on collected revenues minus paid deductions.

The tax effects of temporary differences, tax losses and tax credits that give rise to significant portions of deferred tax assets and liabilities as at December 31, 2017, 2016 and 2015 are detailed below:

	December 31,
	2017		2016		2015
Deferred tax assets
Accounts payable	$	16,404		831		764
Employee benefits		45,519		42,221		32,572
PTU payable		12,917		12,700		9,516
Accounts receivable		-		-		404
Tax loss carryforwards		-		2,760		10,236
Property, plant and equipment		-		-		490
Other provisions		7,025		1,754		239
Total deferred tax assets		81,865		60,266		54,221

Deferred tax liabilities
Property, plant and equipment		59		82		-
Prepaid expenses		1,136		52		94
Total deferred tax liabilities		1,195		134		94
Net deferred tax assets		80,670		60,132		54,127

	December 31,
	2017		2016		2015
Deferred tax assets
Accounts payable	$	1,170,771		964,676		1,093,145
Tax loss carryforwards		22,013		676		1,081
Goodwill		7,562		19,846		22,326
Other provisions		54,020		24,049		6,606
Derivative financial instruments		-		-		859
Total deferred tax assets		1,254,366		1,009,247		1,124,017

Deferred tax liabilities
Inventories		1,601,498		1,612,890		1,400,793
Accounts receivable		421,191		438,146		382,585
Property, plant and equipment		2,428,358		2,566,002		2,356,509
Prepaid expenses		392,800		302,958		353,166
Derivative financial instruments		253,898		1,826		-
Total deferred tax liabilities		5,097,745		4,921,822		4,493,053
Net deferred tax liability	$	3,843,379		3,912,575		3,369,036

Unrecognized deferred tax assets

Deferred tax assets that have not been recognized in the Company’s consolidated financial statements are as follows:

	December 31,
	2017		2016		2015
Recoverable tax on assets		-		-		1,774
Total	$	-		-		1,774

Unrecognized deferred tax liabilities

Deferred taxes related to investments in subsidiaries have not been recognized as the Company is able to control the moment of the reversal of the temporary difference, and the reversal is not expected to take place in the foreseeable future. Deferred income tax on investments in subsidiaries not recognized as of December 31, 2017 and 2016 amounts to $2,587,954 and $1,962,545, respectively. The Company's policy has been to distribute accounting profits when the respective taxes have been paid and in the case of foreign profits, such tax may be duly credited in Mexico.

Movement in temporary differences during the fiscal year

	January 1, 2017		Recognized in profit and loss		Acquired or/ Recognized directly in equity		December 31, 2017
Accounts payable	$	(965,507)		(223,640)		1,972		(1,187,175)
Employee benefits		(42,221)		1,915		(5,213)		(45,519)
PTU payable		(12,700)		(217)		-		(12,917)
Tax loss carryforwards		(3,436)		(18,577)		-		(22,013)
Other provisions		(25,803)		(35,577)		335		(61,045)
Goodwill		(19,846)		10,895		1,389		(7,562)
Intangible assets		-		-		253,898		253,898
Inventories		1,612,890		(82,523)		71,131		1,601,498
Accounts receivable		438,146		(16,955)		-		421,191
Property, plant and equipment		2,566,084		(351,511)		213,844		2,428,417
Prepaid expenses		303,010		90,926		-		393,936
Derivative financial instruments		1,826		(1,826)		-		-
Net deferred tax liability	$	3,852,443		(627,090)		537,356		3,762,709

	January 1, 2016		Recognized in profit and loss		Acquired or/ Recognized directly in equity		December 31, 2016
Accounts payable	$	(1,093,909)		134,658		(6,256)		(965,507)
Employee benefits		(32,572)		(14,115)		4,466		(42,221)
PTU payable		(9,516)		(3,184)		-		(12,700)
Tax loss carryforwards		(11,317)		7,881		-		(3,436)
Other provisions		(6,846)		(18,200)		(757)		(25,803)
Goodwill		(22,326)		6,272		(3,792)		(19,846)
Inventories		1,400,793		167,441		44,656		1,612,890
Accounts receivable		382,182		55,964		-		438,146
Property, plant and equipment		2,356,019		93,752		116,313		2,566,084
Prepaid expenses		353,260		(50,250)		-		303,010
Derivative financial instruments		(859)		2,685		-		1,826
Net deferred tax liability	$	3,314,909		382,904		154,630		3,852,443

	January 1, 2015		Recognized in profit and loss		Acquired or/ Recognized directly in equity		December 31, 2015
Accounts payable	$	(1,125,260)		35,489		(4,138)		(1,093,909)
Employee benefits		(21,515)		(3,274)		(7,783)		(32,572)
PTU payable		(6,800)		(2,716)		-		(9,516)
Tax loss carryforwards		(25,455)		14,389		(251)		(11,317)
Other provisions		(16,101)		9,379		(124)		(6,846)
Goodwill		-		(20,588)		(1,738)		(22,326)
Inventories		1,188,259		187,852		24,682		1,400,793
Accounts receivable		410,870		(28,688)		-		382,182
Property, plant and equipment		2,365,620		(88,973)		79,372		2,356,019
Prepaid expenses		257,329		95,931		-		353,260
Derivative financial instruments		5,872		(6,731)		-		(859)
Net deferred tax liability	$	3,032,819		192,070		90,020		3,314,909

Tax on assets and tax loss carryforwards

As at December 31, 2017, tax loss carryforwards expire as shown below. Amounts are indexed for inflation as permitted by Mexican income tax law:

	Amount as of December 31, 2017
Year	Tax loss carryforwards		Year of expiration / maturity
2017	$	73,538		2027