Bunge LTD

INCOME TAXES

Bunge operates globally and is subject to the tax laws and regulations of numerous tax jurisdictions and authorities, as well as tax agreements and treaties among these jurisdictions. Bunge's tax provision is impacted by, among other factors, changes in tax laws, regulations, agreements and treaties, currency exchange rates, and Bunge's profitability in each taxing jurisdiction.

Bunge has elected to use the U.S. federal income tax rate to reconcile the actual provision for income taxes.

The components of income from operations before income tax are as follows:



	Year Ended December 31,
(US$ in millions)	2017		2016		2015
United States	$	21	$	102	$	207
Non-United States	209		894		844
Total	$	230	$	996	$	1,051

The components of the income tax expense (benefit) are:



	Year Ended December 31,
(US$ in millions)	2017			2016			2015
Current:
United States	$	45		$	(76	)	$	35
Non-United States	34			170			245
	79			94			280
Deferred:
United States	20			38			36
Non-United States	(43		)	88			(20		)
	(23		)	126			16
Total	$	56		$	220		$	296

Reconciliation of the income tax expense (benefit) if computed at the U.S. Federal income tax rate to Bunge's reported income tax expense (benefit) is as follows:



	Year Ended December 31,
(US$ in millions)	2017			2016			2015
Income from operations before income tax	$	230		$	996		$	1,051
Income tax rate	35		%	35		%	35		%
Income tax expense at the U.S. Federal tax rate	80			348			368
Adjustments to derive effective tax rate:
Foreign earnings taxed at different statutory rates	(42		)	(68		)	(16		)
Valuation allowances	43			(44		)	44
Fiscal incentives⁽¹⁾	(42		)	(34		)	(41		)
Foreign exchange on monetary items	(9		)	5			(5		)
Tax rate changes	(62		)	4			1
Non-deductible expenses	27			3			16
Uncertain tax positions	(48		)	89			(14		)
Deferred balance adjustments	(4		)	—			(8		)
Equity distributions	—			—			(64		)
Transition tax	105			—			—
Tax exempt investments	(14		)	(12		)	—
Tax credits	(8		)	(89		)	—
Incremental tax on future distributions	27			—			—
Other	3			18			15
Income tax (benefit) expense	$	56		$	220		$	296


(1)	Fiscal incentives predominantly relate to investment incentives in Brazil that are exempt from Brazilian income tax.

The primary components of the deferred tax assets and liabilities and the related valuation allowances are as follows:



	December 31,
(US$ in millions)	2017			2016
Deferred income tax assets:
Net operating loss carryforwards	$	964		$	944
Employee benefits	106			158
Tax credit carryforwards	13			10
Inventories	50			18
Intangibles	—			9
Accrued expenses and other	388			231
Total deferred tax assets	1,521			1,370
Less valuation allowances	(900		)	(839		)
Deferred tax assets, net of valuation allowance	621			531
Deferred income tax liabilities:
Property, plant and equipment	251			200
Undistributed earnings of affiliates	35			13
Investments	17			33
Intangibles	24			—
Total deferred tax liabilities	327			246
Net deferred tax assets	$	294		$	285

Bunge has provided a deferred tax liability totaling $35 million and $13 million as of December 31, 2017 and 2016, respectively for withholding taxes (and state income taxes) imposed on earnings expected to be repatriated in the future. As of December 31, 2017, Bunge has determined it has unremitted earnings that are considered to be indefinitely reinvested of approximately $285 million and accordingly, no provision for income taxes has been made. If these earnings were distributed in the form of dividends or otherwise, Bunge would be subject to income taxes in the form of withholding taxes to the recipient for an amount of approximately $35 million.

At December 31, 2017, Bunge's pre-tax loss carryforwards totaled $3,507 million, of which $2,965 million have no expiration, including loss carryforwards of $2,049 million in Brazil. While loss carryforwards in Brazil can be carried forward indefinitely, annual utilization is limited to 30% of taxable income calculated on an entity by entity basis as Brazil tax law does not provide for a consolidated return concept. As a result, realization of these carryforwards may take in excess of five years.

The remaining tax loss carryforwards expire at various periods beginning in 2017 through the year 2036.

Income Tax Valuation Allowances—Bunge records valuation allowances when current evidence does not suggest that some portion or all of its deferred tax assets will be realized. The ultimate realization of deferred tax assets depends primarily on Bunge's ability to generate sufficient timely future income of the appropriate character in the appropriate taxing jurisdiction.

As of December 31, 2017 and 2016, Bunge has recorded valuation allowances of $900 million and $839 million, respectively. The net increase of $61 million results primarily from increased valuation allowances in Europe and Brazil along with foreign currency translation.

Unrecognized Tax Benefits—ASC Topic 740 requires applying a "more likely than not" threshold to the recognition and de-recognition of tax benefits. Accordingly Bunge recognizes the amount of tax benefit that has a greater than 50 percent likelihood of being ultimately realized upon settlement. At December 31, 2017 and 2016, respectively, Bunge had recorded unrecognized tax benefits of $99 million and $81 million in other non-current liabilities and $7 million and $49 million in current liabilities in its consolidated balance sheets. During 2017, 2016 and 2015, respectively, Bunge recognized $(9) million, $10 million and $(1) million of interest and penalty charges in income tax expense (benefit) in the consolidated statements of income. At December 31, 2017 and 2016, respectively, Bunge had included accrued interest and penalties of $27 million and $36 million within the related tax liability line in the consolidated balance sheets. A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:



(US$ in millions)	2017			2016			2015
Balance at January 1,	$	409		$	51		$	72
Additions based on tax positions related to the current year	34			9			6
Additions based on acquisitions	—			2			10
Additions based on tax positions related to prior years	13			374			1
Reductions for tax positions of prior years	(43		)	—			(14		)
Settlement or clarification from tax authorities	—			(1		)	(6		)
Expiration of statute of limitations	(32		)	(9		)	(5		)
Foreign currency translation	40			(17		)	(13		)
Balance at December 31,	$	421		$	409		$	51

Bunge believes that it is reasonably possible that approximately $95 million of its unrecognized tax benefits may be recognized by the end of 2018 as a result of a lapse of the statute of limitations or settlement with the tax authorities.

Bunge, through its subsidiaries, files income tax returns in the United States (federal and various states) and non-United States jurisdictions. The table below reflects the tax years for which Bunge is subject to income tax examinations by tax authorities:



	Open Tax Years
North America	2010 - 2017
South America	2006 - 2017
Europe	2005 - 2017
Asia-Pacific	2003 - 2017

As of December 31, 2017, Bunge's Brazilian subsidiaries have received income tax and penalty assessments through 2014 of approximately 3,971 million Brazilian reais (approximately $1,200 million), plus applicable interest on the outstanding amount. Bunge has recorded unrecognized tax benefits related to these assessments of 15 million Brazilian reais (approximately $4.6 million) as of December 31, 2017.

In addition, as of December 31, 2017, Bunge's Argentine subsidiary had received income tax assessments relating to 2006 through 2009 of approximately 1,275 million Argentine pesos (approximately $68 million), plus applicable interest on the outstanding amount of approximately 3,787 million Argentine pesos (approximately $203 million). Bunge anticipates that the tax authorities will examine fiscal years 2010-2013, although no notice has been rendered to Bunge's Argentine subsidiary.

Management, in consultation with external legal advisors, believes that it is more likely than not that Bunge will prevail on the proposed assessments (with exception of unrecognized tax benefit discussed above) in Brazil and Argentina and intends to vigorously defend its position against these assessments.

Bunge made cash income tax payments, net of refunds received, of $89 million, $144 million and $271 million during the years ended December 31, 2017, 2016, and 2015 respectively.

On December 22, 2017, H.R. 1, commonly known as the “Tax Cuts and Jobs Act” (the “Tax Act”) was signed into U.S. law. The Tax Act lowers the U.S. statutory corporate tax rate from 35% to 21% starting in 2018, introduces further limitations on the deductibility of interest expense, and imposes a one-time transition tax (“Transition Tax”) on deemed repatriated earnings of certain foreign subsidiaries (non-United States subsidiaries owned by Bunge U.S. affiliates). In addition, the Tax Act introduces additional base-broadening measures, including Global Intangible Low-Taxed Income (“GILTI”) and the Base-Erosion Anti-Abuse Tax (“BEAT”).

Bunge recognized the income tax effects of the Tax Act in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC 740, Income Taxes, in the reporting period in which the Tax Act was signed into law. As such, our financial results reflect the income tax effects of the Tax Act for which the accounting under ASC Topic 740 is complete and provisional amounts for those specific income tax effects of the Tax Act for which the accounting under ASC Topic 740 is incomplete but a reasonable estimate could be determined. Pursuant to SAB 118, adjustments to the provisional amounts recorded by us as of December 31, 2017 that are identified within a subsequent measurement period of up to one year from the enactment date will be included as an adjustment to the tax expense from continuing operations in the period the amounts are determined.

Bunge recognized the effects of the Tax Act as follows:


•	Rate Change - Bunge has recorded a one-time provisional deferred tax benefit of $72 million in the fourth quarter of 2017 to revalue temporary differences at the new 21% tax rate. Bunge has not finalized our computation of the impact of the rate change as we are continuing to analyze and refine our assessment of the Tax Act.

•

Transition Tax - Bunge recognized a provisional charge of $105 million in the fourth quarter related to the Transition Tax. Bunge is awaiting further guidance from the U.S. taxing authorities on aspects of calculating the Transition Tax before finalizing the calculations as well as analyzing the amount of deemed repatriated earnings. Future legislation and regulatory action by U.S. states could also impact the Transition Tax, which would be re-estimated upon enactment of such legislation or issuance of regulations.


•	GILTI - Bunge is evaluating the future impacts of GILTI before deciding the policy election to be made in connection with the accounting for GILTI. Guidance from U.S. taxing authorities on the administration of GILTI will influence Bunge's decision on accounting policy elections.

As a result of the Tax Act, Bunge is evaluating its intentions on repatriating previously taxed income and have provisionally recorded a deferred tax liability of $27 million related to withholding taxes and state taxes expected to be incurred upon repatriation of earnings to the United States. Bunge expects to finalize the provisional deferred tax liability calculations concurrently with the Transition Tax calculations.