NOTE 13 – INCOME TAXES
Provision for Taxes
The Company files a United States federal income tax return and a Canadian branch return on a fiscal year-end basis and files Mexican income tax returns for its three Mexican subsidiaries on a calendar year-end basis. The Company and two of its wholly-owned subsidiaries, Minera Metalin and Minas, have not generated taxable income since inception. Contratistas, another wholly-owned Mexican subsidiary, has historically generated taxable income based upon intercompany fees billed to Minera Metalin on the services it provides.
On April 16, 2010, a wholly-owned subsidiary of the Company was merged with and into Dome, resulting in Dome becoming a wholly-owned subsidiary of the Company. Dome, a Delaware corporation, files a tax return in the United States as part of the Company's consolidated tax return.
The components of loss before income taxes were as follows:
| |
|
For the year ended
October 31,
|
|
| |
|
2017
|
|
|
2016
|
|
|
United States
|
|
$
|
(1,339,000
|
)
|
|
$
|
(1,363,000
|
)
|
|
Foreign
|
|
|
(713,000
|
)
|
|
|
(863,000
|
)
|
|
Loss before income taxes
|
|
$
|
(2,052,000
|
)
|
|
$
|
(2,226,000
|
)
|
The components of the provision for income taxes are as follows:
|
|
|
For the year ended
October 31,
|
|
| |
|
2017
|
|
|
2016
|
|
|
Foreign
|
|
|
|
|
|
|
|
Current tax expense
|
|
$
|
1,867
|
|
|
$
|
9,108
|
|
|
Deferred tax expense
|
|
|
—
|
|
|
|
—
|
|
| |
|
$
|
1,867
|
|
|
$
|
9,108
|
|
The Company's provision for income taxes for the fiscal year ended October 31, 2017 consisted of a tax expense of $1,867 related to a provision for income taxes for Contratistas and the Silver Bull Canadian branch return for the fiscal year ended October 31, 2017.
The reconciliation of the provision for income taxes computed at the U.S. statutory rate to the provision for income tax as shown in the statement of operations and comprehensive loss is as follows:
| |
|
For the year ended
|
|
| |
|
October 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit calculated at U.S. federal income tax rate
|
|
$
|
(718,000
|
)
|
|
$
|
(779,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Differences arising from:
|
|
|
|
|
|
|
|
|
|
Other permanent differences
|
|
|
130,000
|
|
|
|
40,000
|
|
|
Differences due to foreign income tax rates
|
|
|
43,000
|
|
|
|
43,000
|
|
|
Adjustment to prior year taxes
|
|
|
(77,000
|
)
|
|
|
493,000
|
|
|
Inflation adjustment foreign net operating loss
|
|
|
(422,000
|
)
|
|
|
(242,000
|
)
|
|
Foreign currency fluctuations
|
|
|
115,000
|
|
|
|
1,731,000
|
|
|
Increase (decrease) in valuation allowance
|
|
|
353,000
|
|
|
|
(1,452,000
|
)
|
|
Net operation loss carry forwards expiration – Mexico
|
|
|
565,000
|
|
|
|
173,000
|
|
|
Other
|
|
|
13,000
|
|
|
|
2,000
|
|
|
Net income tax provision
|
|
$
|
2,000
|
|
|
$
|
9,000
|
|
The components of the deferred tax assets at October 31, 2017 and 2016 were as follows:
| |
|
October 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Net operating loss carry forwards – U.S.
|
|
$
|
11,766,000
|
|
|
$
|
11,353,000
|
|
|
Net capital loss carry forwards – U.S.
|
|
|
103,000
|
|
|
|
103,000
|
|
|
Net operating loss carry forwards – Mexico
|
|
|
8,111,000
|
|
|
|
8,300,000
|
|
|
Stock-based compensation – U.S.
|
|
|
11,000
|
|
|
|
24,000
|
|
|
Exploration Costs.
|
|
|
122,000
|
|
|
|
—
|
|
|
Other – U.S.
|
|
|
36,000
|
|
|
|
35,000
|
|
|
Other – Mexico
|
|
|
38,000
|
|
|
|
19,000
|
|
|
Total net deferred tax assets
|
|
|
20,187,000
|
|
|
|
19,834,000
|
|
|
Less: valuation allowance
|
|
|
(20,187,000
|
)
|
|
|
(19,834,000
|
)
|
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
At October 31, 2017, the Company has U.S. net operating loss carry-forwards of approximately $34 million which expire in the years 2018 through 2037. The Company has U.S net capital loss carry-forwards of approximately $0.3 million which expire in the year 2020. The Company has approximately $27 million of net operating loss carry-forwards in Mexico which expire in the years 2018 through 2027.
The valuation allowance for deferred tax assets of $20.2 and $19.8 million at October 31, 2017 and 2016, respectively, relates principally to the uncertainty of the utilization of certain deferred tax assets, primarily net operating loss carry forwards in various tax jurisdictions. The Company continually assesses both positive and negative evidence to determine whether it is more likely than not that the deferred tax assets can be realized prior to their expiration. Based on the Company's assessment, it has determined that the deferred tax assets are not currently realizable.
On December 22, 2017 United States tax legislation was enacted that will reduce the United States corporate tax rate from 35% to 21% effective January 1, 2018.
Net Operating Loss Carry Forward Limitation
The Tax Reform Act of 1986 contains provisions that limit the utilization of net operating loss and tax credit carry forwards if there has been a change in ownership as described in Section 382 of the Internal Revenue Code. As a result of the Dome merger in April 2010, substantial changes in the Company's ownership have occurred that may limit or reduce the amount of net operating loss carry forwards that the Company could utilize in the future to offset taxable income. The Company has not completed a detailed Section 382 study at this time to determine what impact, if any, that ownership changes may have had on its operating loss carry forwards. In each period since its inception, the Company has recorded a valuation allowance for the full amount of its deferred tax assets, as the realization of the deferred tax asset is uncertain. As a result, the Company has not recognized any federal or state income tax benefit in its consolidated statement of operations and comprehensive loss.
Accounting for Uncertainty in Income Taxes
During the fiscal years ended October 31, 2017 and 2016, the Company has not identified any unrecognized tax benefits or had any additions or reductions in tax positions and therefore a reconciliation of the beginning and ending amount of unrecognized tax benefits is not presented.
The Company does not have any unrecognized tax benefits as of October 31, 2017, and accordingly the Company's effective tax rate will not be materially affected by unrecognized tax benefits.
The following tax years remain open to examination by the Company's principal tax jurisdictions:
|
United States:
|
2013 and all following years
|
|
Mexico:
|
2012 and all following years
|
|
Canada:
|
2013 and all following years
|
The Company has not identified any uncertain tax position for which it is reasonably possible that the total amount of unrecognized tax benefit will significantly increase or decrease within the next 12 months.
The Company's policy is to classify tax related interest and penalties as income tax expense. There is no interest or penalties estimated on the underpayment of income taxes as a result of unrecognized tax benefits.