NOTE 18 - CURRENT AND DEFERRED TAXES
In the period ended December 31, 2017, the income tax provision was calculated for such period, applying the rate of 25.5% for the business year 2017, in accordance with the Law No. 20,780 published in the Official Journal of the Republic of Chile on September 29, 2014.
Among the main changes is the progressive increase of the First Category Tax which will reach 27% in 2018 if the "Partially Integrated Taxation System" is chosen. Alternatively, if the Company chooses the "Attributed Income Taxation System" the top rate would reach 25% in 2017.
As LATAM Airlines Group S.A. is a public company, by default it must choose the "Partially Integrated Taxation System", unless a future Extraordinary Meeting of Shareholders of the Company agrees, by a minimum of 2/3 of the votes, to choose the "Attributed Income Taxation System". This decision was taken in the last quarter of 2016.
On February 8, 2016, an amendment to the abovementioned Law was issued (as Law 20,899) stating, as its main amendments, that Companies such Latam Airlines Group S.A. had to mandatorily choose the "Partially Integrated Taxation System" and could not elect to use the other system.
The Partially Integrated Taxation System is based on the taxation by the perception of profits and the Attributed Income Taxation System is based on the taxation by the accrual of profits.
Assets and deferred tax liabilities are offset if there is a legal right to offset the assets and liabilities always correspond to the same entity and tax authority.
| (a) | Current taxes |
(a.1) The composition of the current tax assets is the following:
| Current assets | Non-current assets | Total assets | ||||||||||||||||||||||
| As of | As of | As of | As of | As of | As of | |||||||||||||||||||
| December 31, | December 31, | December 31, | December 31, | December 31, | December 31, | |||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
| Provisional monthly | ||||||||||||||||||||||||
| payments (advances) | 65,257 | 43,821 | - | - | 65,257 | 43,821 | ||||||||||||||||||
| Other recoverable credits | 12,730 | 21,556 | 17,532 | 20,272 | 30,262 | 41,828 | ||||||||||||||||||
| Total assets by current tax | 77,987 | 65,377 | 17,532 | 20,272 | 95,519 | 85,649 | ||||||||||||||||||
(a.2) The composition of the current tax liabilities are as follows:
| Current liabilities | Non-current liabilities | Total liabilities | ||||||||||||||||||||||
| As of | As of | As of | As of | As of | As of | |||||||||||||||||||
| December 31, | December 31, | December 31, | December 31, | December 31, | December 31, | |||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
| Income tax provision | 3,511 | 9,632 | - | - | 3,511 | 9,632 | ||||||||||||||||||
| Additional tax provision | - | 4,654 | - | - | - | 4,654 | ||||||||||||||||||
| Total liabilities by current tax | 3,511 | 14,286 | - | - | 3,511 | 14,286 | ||||||||||||||||||
(b) Deferred taxes
The balances of deferred tax are the following:
| Assets | Liabilities | |||||||||||||||
| As of | As of | As of | As of | |||||||||||||
| December 31, | December 31, | December 31, | December 31, | |||||||||||||
| Concept | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
| Depreciation | 210,855 | 11,735 | 1,401,277 | 1,387,760 | ||||||||||||
| Leased assets | (103,201 | ) | (35,922 | ) | 275,142 | 203,836 | ||||||||||
| Amortization | (484 | ) | (15,820 | ) | 54,335 | 61,660 | ||||||||||
| Provisions | (9,771 | ) | 222,253 | 690 | (59,096 | ) | ||||||||||
| Revaluation of financial instruments | (734 | ) | - | (4,484 | ) | (3,223 | ) | |||||||||
| Tax losses | 290,973 | 202,536 | (1,188,586 | ) | (1,126,200 | ) | ||||||||||
| Intangibles | - | - | 406,536 | 430,705 | ||||||||||||
| Others | (23,617 | ) | (202 | ) | 4,787 | 20,317 | ||||||||||
| Total | 364,021 | 384,580 | 949,697 | 915,759 | ||||||||||||
The balance of deferred tax assets and liabilities are composed primarily of temporary differences to be reversed in the long term.
Movements of Deferred tax assets and liabilities
| (a) | From January 1 to December 31, 2015 |
| Opening | Recognized in | Recognized in | Exchange | Ending | ||||||||||||||||||||
| balance | consolidated | comprehensive | rate | balance | ||||||||||||||||||||
| Assets/(liabilities) | income | income | variation | Others | Asset (liability) | |||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
| Depreciation | (871,640 | ) | (267,891 | ) | - | 8,540 | - | (1,130,991 | ) | |||||||||||||||
| Leased assets | (185,775 | ) | (73,330 | ) | - | 7,803 | - | (251,302 | ) | |||||||||||||||
| Amortization | (160,100 | ) | 84,330 | - | 4,606 | - | (71,164 | ) | ||||||||||||||||
| Provisions | 351,077 | 150,362 | 3,911 | (126,813 | ) | - | 378,537 | |||||||||||||||||
| Revaluation of financial instruments | 12,806 | 19,760 | (21,103 | ) | (3,179 | ) | - | 8,284 | ||||||||||||||||
| Tax losses (*) | 722,749 | 320,397 | - | (33,364 | ) | - | 1,009,782 | |||||||||||||||||
| Intangibles | (523,275 | ) | (8,362 | ) | - | 167,323 | - | (364,314 | ) | |||||||||||||||
| Others | 9,587 | 45,638 | - | (62,182 | ) | (6,845 | ) | (13,802 | ) | |||||||||||||||
| Total | (644,571 | ) | 270,904 | (17,192 | ) | (37,266 | ) | (6,845 | ) | (434,970 | ) | |||||||||||||
| (b) | From January 1 to December 31, 2016 |
| Opening | Recognized in | Recognized in | Exchange | Ending | ||||||||||||||||||||
| balance | consolidated | comprehensive | rate | balance | ||||||||||||||||||||
| Assets/(liabilities) | income | income | variation | Others | Asset (liability) | |||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
| Depreciation | (1,130,991 | ) | (241,435 | ) | - | (3,599 | ) | - | (1,376,025 | ) | ||||||||||||||
| Leased assets | (251,302 | ) | 14,833 | - | (3,289 | ) | - | (239,758 | ) | |||||||||||||||
| Amortization | (71,164 | ) | (4,375 | ) | - | (1,941 | ) | - | (77,480 | ) | ||||||||||||||
| Provisions | 378,537 | (149,969 | ) | 921 | 53,448 | (1,568 | ) | 281,369 | ||||||||||||||||
| Revaluation of financial instruments | 8,284 | 28,294 | (34,695 | ) | 1,340 | - | 3,223 | |||||||||||||||||
| Tax losses (*) | 1,009,782 | 304,892 | - | 14,062 | - | 1,328,736 | ||||||||||||||||||
| Intangibles | (364,314 | ) | 4,131 | - | (70,522 | ) | - | (430,705 | ) | |||||||||||||||
| Others | (13,802 | ) | (30,185 | ) | - | 22,234 | 1,214 | (20,539 | ) | |||||||||||||||
| Total | (434,970 | ) | (73,814 | ) | (33,774 | ) | 11,733 | (354 | ) | (531,179 | ) | |||||||||||||
| (c) | From January 1 to December 31, 2017 |
| Opening | Recognized in | Recognized in | Exchange | Ending | ||||||||||||||||
| balance | consolidated | comprehensive | rate | balance | ||||||||||||||||
| Assets/(liabilities) | income | income | variation | Asset (liability) | ||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||
| Depreciation | (1,376,025 | ) | 185,282 | - | 322 | (1,190,421 | ) | |||||||||||||
| Leased assets | (239,758 | ) | (138,879 | ) | - | 294 | (378,343 | ) | ||||||||||||
| Amortization | (77,480 | ) | 22,486 | - | 174 | (54,820 | ) | |||||||||||||
| Provisions | 281,369 | (286,267 | ) | (785 | ) | (4,778 | ) | (10,461 | ) | |||||||||||
| Revaluation of financial instruments | 3,223 | 2,417 | (1,770 | ) | (120 | ) | 3,750 | |||||||||||||
| Tax losses (*) | 1,328,736 | 152,081 | - | (1,257 | ) | 1,479,560 | ||||||||||||||
| Intangibles | (430,705 | ) | 24,436 | - | (267 | ) | (406,536 | ) | ||||||||||||
| Others | (20,539 | ) | (7,547 | ) | - | (319 | ) | (28,405 | ) | |||||||||||
| Total | (531,179 | ) | (45,991 | ) | (2,555 | ) | (5,951 | ) | (585,676 | ) | ||||||||||
Deferred tax assets not recognized:
| As of | As of | |||||||
| December 31, | December 31, | |||||||
| 2017 | 2016 | |||||||
| ThUS$ | ThUS$ | |||||||
| Tax losses | 81,155 | 115,801 | ||||||
| Total Deferred tax assets not recognized | 81,155 | 115,801 | ||||||
Deferred tax assets on tax loss, are recognized to the extent that it is likely probable the realization of future tax benefit By the above at December 31, 2017, the Company has not recognized deferred tax assets of ThUS$ 81,155 (ThUS$ 115,801 at December 31, 2016) according with a loss of ThUS$ 247,920 (ThUS$ 340,591 at December 31, 2016).
Deferred tax expense and current income taxes:
| For the period ended | ||||||||||||
| December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| ThUS$ | ThUS$ | ThUS$ | ||||||||||
| Current tax expense | ||||||||||||
| Current tax expense | 127,024 | 87,307 | 92,916 | |||||||||
| Adjustment to previous period’s current tax | 489 | 2,083 | (395 | ) | ||||||||
| Total current tax expense, net | 127,513 | 89,390 | 92,521 | |||||||||
| Deferred tax expense | ||||||||||||
| Deferred expense for taxes related to the creation and reversal of temporary differences | 45,991 | 73,814 | (270,904 | ) | ||||||||
| Reduction (increase) in value of deferred tax assets during the evaluation of its usefulness | - | - | - | |||||||||
| Total deferred tax expense, net | 45,991 | 73,814 | (270,904 | ) | ||||||||
| Income tax expense | 173,504 | 163,204 | (178,383 | ) | ||||||||
Composition of income tax expense (income):
| For the period ended | ||||||||||||
| December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| ThUS$ | ThUS$ | ThUS$ | ||||||||||
| Current tax expense, net, foreign | 100,657 | 80,600 | 89,460 | |||||||||
| Current tax expense, net, Chile | 26,856 | 8,790 | 3,061 | |||||||||
| Total current tax expense, net | 127,513 | 89,390 | 92,521 | |||||||||
| Deferred tax expense, net, foreign | 21,846 | 119,175 | (280,445 | ) | ||||||||
| Deferred tax expense, net, Chile | 24,145 | (45,361 | ) | 9,541 | ||||||||
| Deferred tax expense, net, total | 45,991 | 73,814 | (270,904 | ) | ||||||||
| Income tax expense | 173,504 | 163,204 | (178,383 | ) | ||||||||
Profit before tax by the legal tax rate in Chile (25.5% and 24.0% at December 31, 2017 and 2016, respectively)
| For the period ended | For the period ended | |||||||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |||||||||||||||||||
| ThUS$ | ThUS$ | ThUS$ | % | % | % | |||||||||||||||||||
| Tax expense using the legal rate (*) | 95,425 | 65,449 | (89,472 | ) | 25.50 | 24.00 | 22.50 | |||||||||||||||||
| Tax effect by change in tax rate (*) | 897 | - | - | 0.24 | - | - | ||||||||||||||||||
| Tax effect of rates in other jurisdictions | 42,326 | 16,333 | (21,803 | ) | 11.31 | 5.99 | 5.48 | |||||||||||||||||
| Tax effect of non-taxable operating revenues | (44,593 | ) | (62,419 | ) | (106,381 | ) | (11.92 | ) | (22.89 | ) | 26.75 | |||||||||||||
| Tax effect of disallowable expenses | 35,481 | 132,469 | 38,677 | 9.48 | 48.58 | (9.73 | ) | |||||||||||||||||
| Tax effect of the use of tax losses not previously recognized | 211 | - | - | 0.06 | - | - | ||||||||||||||||||
| Other increases (decreases) in legal tax charge | 43,757 | 11,372 | 596 | 11.69 | 4.17 | (0.15 | ) | |||||||||||||||||
| Total adjustments to tax expense using the legal rate | 78,079 | 97,755 | (88,911 | ) | 20.86 | 35.85 | 22.35 | |||||||||||||||||
| Tax expense using the effective rate | 173,504 | 163,204 | (178,383 | ) | 46.36 | 59.85 | 44.85 | |||||||||||||||||
(*) On September 29, 2014, Law No. 20,780 "Amendment to the system of income taxation and introduces various adjustments in the tax system." was published in the Official Journal of the Republic of Chile. Within major tax reforms that this law contains, the First- Category Tax rate is gradually modified from 2014 to 2018 and should be declared and paid in tax year 2015.
Thus, at December 31, 2017 the Company presents the reconciliation of income tax expense and legal tax rate considering the rate increase.
Deferred taxes related to items charged to net equity:
| For the period ended | ||||||||
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| ThUS$ | ThUS$ | |||||||
| Aggregate deferred taxation of components of other comprehensive income | (2,555 | ) | (33,774 | ) | ||||
| Aggregate deferred taxation related to items charged to net equity | - | (807 | ) | |||||