| 15. | Deferred income tax assets and liabilities |
This caption is made up as follows:
| As of January 01, 2016 |
Effect on profit or loss | Effect on
OCI |
Discontinued operations | As of December
31, 2016 |
Effect on profit or loss | Effect on
OCI |
Discontinued operations | As of December
31, 2017 |
|||||||||||||||||||
| S/(000) | S/(000) | S/(000) | S/(000) | S/(000) | S/(000) | S/(000) | S/(000) | S/(000) | |||||||||||||||||||
| Movement of deferred income tax assets: | |||||||||||||||||||||||||||
| Deferred income tax assets | |||||||||||||||||||||||||||
| Provision for vacations | 355 | (116 | ) | — | (167 | ) | 72 | 16 | — | — | 88 | ||||||||||||||||
| Effect of differences between book and tax bases of fixed assets and in the depreciation rates used for book purposes | (467 | ) | 14 | — | 455 | 2 | 34 | — | — | 36 | |||||||||||||||||
| Other | 62 | 10 | — | (36 | ) | 36 | (18 | ) | — | — | 18 | ||||||||||||||||
| Tax-loss carry forward | 21,127 | 301 | — | (16,475 | ) | 4,953 | (4,953 | ) | — | — | — | ||||||||||||||||
| Pre-operating costs | — | 1,287 | — | — | 1,287 | (1,287 | ) | — | — | — | |||||||||||||||||
| Total deferred income tax assets | 21,077 | 1,496 | — | (16,223 | ) | 6,350 | (6,208 | ) | — | — | 142 | ||||||||||||||||
| Movement of deferred income tax liabilities: | |||||||||||||||||||||||||||
| Deferred income tax assets | |||||||||||||||||||||||||||
| Impairment of zinc mining assets | 24,986 | 3,332 | — | — | 28,318 | — | — | — | 28,318 | ||||||||||||||||||
| Impairment on brine project assets, note 1.2 | — | — | — | — | — | 17,087 | — | — | 17,087 | ||||||||||||||||||
| Long-term incentive plan | 10,334 | (196 | ) | — | — | 10,138 | (1,194 | ) | — | — | 8,944 | ||||||||||||||||
| Provision for vacations | 4,051 | (382 | ) | — | — | 3,669 | 157 | — | — | 3,826 | |||||||||||||||||
| Available-for-sale financial investment from spin-off, note 1.1 | — | — | — | — | — | — | — | 2,253 | 2,253 | ||||||||||||||||||
| Discounts on trade receivables | — | — | — | — | — | 1,093 | — | — | 1,093 | ||||||||||||||||||
| Other | 5,795 | (2,016 | ) | — | — | 3,779 | 1,849 | — | — | 5,628 | |||||||||||||||||
| 45,166 | 738 | — | — | 45,904 | 18,992 | — | 2,253 | 67,149 | |||||||||||||||||||
| Deferred income tax liabilities | |||||||||||||||||||||||||||
| Effect of differences between book and tax bases of fixed assets and in the depreciation rates used for book purposes | (124,157 | ) | (33,479 | ) | — | — | (157,636 | ) | (11,332 | ) | — | — | (168,968 | ) | |||||||||||||
| Effect of costs of issuance of senior notes | (3,218 | ) | 312 | — | — | (2,906 | ) | 484 | — | — | (2,422 | ) | |||||||||||||||
| Net gain on cash flow hedge | (32,439 | ) | 711 | 11,104 | — | (20,624 | ) | 9,203 | 11,277 | — | (144 | ) | |||||||||||||||
| Effect of available-for-sale investments disposed, note 9 | 3 | — | (65 | ) | — | (62 | ) | — | 62 | — | — | ||||||||||||||||
| Other | (4,424 | ) | (4 | ) | — | — | (4,428 | ) | (10 | ) | — | — | (4,438 | ) | |||||||||||||
| (164,235 | ) | (32,460 | ) | 11,039 | — | (185,656 | ) | (1,655 | ) | 11,339 | — | (175,972 | ) | ||||||||||||||
| Total deferred income tax liabilities, net | (119,069 | ) | (31,722 | ) | 11,039 | — | (139,752 | ) | 17,337 | 11,339 | 2,253 | (108,823 | ) | ||||||||||||||
| (30,226 | ) | 11,039 | (16,223 | ) | 11,129 | 11,339 | 2,253 |
The Group offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority.
A reconciliation between tax expenses and the product of the accounting profit multiplied by Peruvian tax rate for the years 2017, 2016 and 2015 is as follows:
| 2017 | 2016 | 2015 | ||||||||||
| S/(000) | S/(000) | S/(000) | ||||||||||
| Profit before income tax from continuing operations | 128,417 | 198,110 | 306,770 | |||||||||
| Loss before income tax from discontinued operations | (1,305 | ) | (12,988 | ) | (8,861 | ) | ||||||
| Accounting profit before income tax | 127,112 | 185,122 | 297,909 | |||||||||
| At statutory income tax rate of 29.5% (2016: 28%, 2015:28%) | (37,498 | ) | (51,834 | ) | (83,415 | ) | ||||||
| Differences | ||||||||||||
| Non-deductible expenses, net | (8,776 | ) | (5,592 | ) | (5,274 | ) | ||||||
| Effect of tax-loss carry forward non-recognized | (246 | ) | (171 | ) | (233 | ) | ||||||
| Dividends obtained from available-for-sale investments | 39 | 8 | 34 | |||||||||
| Effect of the change in income tax-rate | — | (14,639 | ) | 2,646 | ||||||||
| At the effective income tax rate of 37% in 2017 (2016: 39% and 2015: 29%) | (46,481 | ) | (72,228 | ) | (86,242 | ) | ||||||
| Income tax from continuing operations | (47,032 | ) | (78,627 | ) | (89,383 | ) | ||||||
| Income tax from discontinued operations | 551 | 6,399 | 3,141 | |||||||||
| (46,481 | ) | (72,228 | ) | (86,242 | ) | |||||||
In December 2016, the Peruvian Government approved an increase of the income tax rate from 28 percent to 29.50 percent to be effective from 2017 onwards. This increase on future tax rates has increased the deferred income tax liability on S/22,344,000 and increased the deferred income tax asset on S/8,529,000 (S/14,639,000 was recognized as a higher income tax expense in the consolidated statement of profit or loss and S/824,000 as an income in OCI).
In December 2014, the Peruvian Government approved the progressive reduction of the income tax rate from 30 percent to 28 percent to be effective in 2015 and 2016, to 27 percent during 2017 and 2018 and 26 percent starting from 2019 onwards. As of December 31, 2015, this reduction on future tax rates had a net impact of S/2,646,000, as a reduction of the deferred income tax liability of the Group, respectively. Such amount was recognized as a reduction of income tax expense in the consolidated statement of profit or loss.
The income tax expenses shown for the years ended December 31, 2017, 2016 and 2015 are:
| 2017 | 2016 | 2015 | ||||||||||
| S/(000) | S/(000) | S/(000) | ||||||||||
| Consolidated statements of profit or loss | ||||||||||||
| Current | (58,161 | ) | (48,401 | ) | (61,007 | ) | ||||||
| Deferred | 11,129 | (30,226 | ) | (28,376 | ) | |||||||
| (47,032 | ) | (78,627 | ) | (89,383 | ) | |||||||
The income tax recorded directly to other comprehensive income is a gain of S/11,339,000 and S/11,039,000, during 2017 and 2016, respectively, and a loss of S/4,019,000 during 2015.
Following is the composition of deferred income tax related to items recognized in OCI and equity during the year:
| 2017 | 2016 | 2015 | ||||||||||
| S/(000) | S/(000) | S/(000) | ||||||||||
| Tax effect on unrealized gain (loss) on available-for-sale financial asset | 61 | (57 | ) | 79 | ||||||||
| Tax effect on unrealized gain (loss) on derivative financial asset | 11,278 | 10,272 | (4,098 | ) | ||||||||
| Effect of the change in income tax-rate | — | 824 | — | |||||||||
| Total deferred income tax in OCI | 11,339 | 11,039 | (4,019 | ) | ||||||||
| Temporary difference on purchase of treasury shares | — | — | (30 | ) | ||||||||
| Temporary difference on available for sale financial investments from spin-off, note 1.1 | 2,253 | — | — | |||||||||
| Total deferred income tax in equity | 2,253 | — | (30 | ) | ||||||||
The tax losses related are available indefinitely for offset against 50% of future annual taxable profits. The amount of losses carried out is subject to the outcome of the reviews of the tax authorities referred in note 27.
Deferred tax assets have not been recognized in respect of certain losses as they may not be used to offset taxable profits elsewhere in the Group, they have arisen in subsidiaries that have been loss-making for some time, and there are no other tax planning opportunities or other evidence of recoverability in the near future. If the Group were able to recognize all unrecognized deferred tax assets, the profit would increase by S/858,000 (2016: S/2,843,000).
As of December 31, 2017, 2016 and 2015, it is not necessary to recognize deferred tax liability for taxes that would be payable on the unremitted earnings of the Group’s subsidiaries. The Group has determined that the timing differences will be reversed by means of dividends to be received in the future that, according to the tax rules in effect in Peru, are not subject to income tax.
For information purposes, the temporary difference associated with investments in subsidiaries, would generate an aggregate deferred tax liability amounting to S/70,365,000 (2016: S/57,615,000), which should not be recognized in the consolidated financial statements according with IAS 12.