NOTE 10     INCOME AND MINING TAXES

 

The Company’s Income and mining tax benefit (expense) consisted of:

 

 

The Company’s Income (loss) before income and mining tax and other items consisted of:

 

 

The Company’s Income and mining tax benefit (expense) differed from the amounts computed by applying the United States statutory corporate income tax rate for the following reasons:

 

 

Factors that Significantly Impact Effective Tax Rate

 

The Tax Cuts and Jobs Act

 

The most influential factors that impact the effective tax rate for the current reporting period stem from the Tax Cuts and Jobs Act (“the Act”) which was enacted on December 22, 2017. The Act significantly changes U.S. income tax law and is the first major overhaul of the federal income tax code in more than 30 years. Key provisions of the Act that impact Newmont include: (i) reduction of the U.S. federal corporate income tax rate from 35% to 21%, (ii) repeal of the Corporate Alternative Minimum Tax (“AMT”) system (iii) replacement of the worldwide taxation system with a territorial tax system which exempts certain foreign operations from U.S. taxation, and (iv) further limitation on the deductibility of certain executive compensation. Other provisions of the Act that do not have a current impact on Newmont but could impact the Company in the future include: (i) modification of earnings calculations for certain foreign subsidiaries that were previously tax deferred to a one-time tax, (ii) creation of a new minimum tax on certain foreign earnings and a new base erosion anti-abuse tax, (iii) repeal of the domestic production deductions, (iv) allowance for immediate capital expensing of certain qualified property, (v) limitation on the deduction for net interest expense incurred by a U.S. corporation, and (vi) modification and/or repeal of a number of other international provisions.

 

The Company has completed its assessment for the income tax effects of the Act for the following items:

 

 

The Company has not completed its assessment for the income tax effects of the Act but has recorded a reasonable estimate of the effects for the items below. The Company anticipates completing the analysis for these estimates, within the one year measurement period for the following items:

 

 

The Company has not completed its assessment for the income tax effects of the Act and is unable to calculate a reasonable estimate of such effect for the items below. The Company anticipates completing the analysis for these items once regulatory guidance is available, within the one year measurement period:

 

Other

 

Percentage depletion allowances (tax deductions for depletion that may exceed the tax basis in the mineral reserves) are available to the Company under the income tax laws of the United States for operations conducted in the United States or through branches and partnerships owned by U.S. subsidiaries included in the consolidated United States income tax return. These deductions are highly sensitive to the price of gold and other minerals produced by the Company.

 

A valuation allowance is provided for those deferred income tax assets for which it is more likely than not that the related benefits will not be realized. In determining the amount of the valuation allowance, we consider estimated future taxable income as well as feasible tax planning strategies in each jurisdiction. If we determine that we will not realize all or a portion of our deferred income tax assets, we will increase our valuation allowance. Conversely, if we determine that we will ultimately be able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced.

 

On the basis of available information at December 31, 2017, the Company has provided a valuation allowance for certain deferred tax assets where the Company believes it is more likely than not that some portion or all of such assets will not be realized. The valuation allowance totaled $2,795 and $3,844 at December 31, 2017 and 2016, respectively. The Company released $41 of valuation allowance on U.S. foreign tax credits due to a refund of Australian taxes related to the filing of amended tax returns for the 2011-2016 tax years.

 

Changes in the Company’s U.S. foreign tax credits, due to U.S. tax restructuring related to U.S. tax reform, will not impact the effective tax rate. These credits were utilized to offset gains on the conversions of non-U.S. subsidiaries from branches to regarded foreign corporations, for which the Company will no longer carry a deferred tax asset on outside basis differences.

 

Changes in valuation allowance for other items such as depreciation in marketable securities are reflected in Other comprehensive income (loss).  

 

Mining taxes in Nevada, Peru and Australia represent state and provincial taxes levied on mining operations and are classified as income taxes as such taxes are based on a percentage of mining profits.

 

The Company consolidates certain subsidiaries of which it does not own 100% of the outstanding equity. However, for tax purposes, the Company is only responsible for the income taxes on the portion of the taxable earnings attributable to its ownership interest of each consolidated entity.

 

Components of the Company's deferred income tax assets (liabilities) are as follows:

 

 

These amounts reflect the classification and presentation that is reported for each tax jurisdiction in which the Company operates.

 

Net deferred income tax assets and liabilities consist of:

 

 

Company’s Unrecognized Tax Benefits

 

At December 31, 2017,  2016 and 2015, the Company had $68,  $68 and $62 of total gross unrecognized tax benefits, respectively. The additions to the unrecognized tax benefits in 2017 is a result of changes to positions in previously open tax years in the United States. The $30 addition to unrecognized tax benefits for positions taken in the current period is directly offset by a reduction in positions taken in a prior period, which is related to the sale of Batu Hijau. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

 

 

At December 31, 2017, 2016 and 2015, $72,  $64 and $35, respectively, represent the amount of unrecognized tax benefits that, if recognized, would impact the Company’s effective income tax rate.

 

The Company operates in numerous countries around the world and is subject to, and pays annual income taxes under, the various income tax regimes in the countries in which it operates. Some of these tax regimes are defined by contractual agreements with the local government, and others are defined by the general corporate income tax laws of the country. The Company has historically filed, and continues to file, all required income tax returns and paid the taxes reasonably determined to be due. The tax rules and regulations in many countries are highly complex and subject to interpretation. From time to time, the Company is subject to a review of its historic income tax filings and in connection with such reviews, disputes can arise with the taxing authorities over the interpretation or application of certain rules to the Company’s business conducted within the country involved.

 

The Company continues to carry an assessment of tax and interest of $54 relating to a pre-acquisition transaction of Fronteer Gold, Inc. and subsidiaries. The taxing authority is disputing the tax attribute that was created as part of the pre-acquisition transaction claimed on Fronteer’s tax return. Due to procedural requirements, the Company paid half of the assessment in the third quarter of 2016. The Company intends to vigorously defend its position through all processes available.

 

The Australian Taxation Office (“ATO”) is conducting a limited review of the Company’s prior year tax returns. The ATO is focused on reviewing an internal reorganization executed in 2011 when Newmont completed a restructure of the shareholding in the Company’s Australian subsidiaries. To date, the Company has responded to inquiries from the ATO and provided them with supporting documentation for the transaction and the Company’s associated tax positions. One aspect of the ATO review relates to an Australian capital gains tax that applies to sales or transfers of stock in certain types of entities.  In the fourth quarter of 2017, the ATO notified the Company that it believes the 2011 reorganization is subject to capital gains tax of approximately $83 (including interest and penalties). The Company disputes this conclusion and intends to vigorously defend its position that the transaction is not subject to this tax. In the fourth quarter of 2017, the Company made a $25 payment to the ATO and lodged an Appeal with the Australian Federal Court to preserve its right to contest the ATO conclusions on this matter.  The Company reflects this payment as a receivable as it believes that it will ultimately prevail in this dispute. The Company continues to monitor the status of the ATO’s review which it expects to continue into 2018.

 

The Company and/or subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. Federal, state and local, and non-U.S. income tax examinations by tax authorities for years before 2011. As a result of (i) statute of limitations that will begin to expire within the next 12 months in various jurisdictions, and (ii) possible settlements of audit-related issues with taxing authorities in various jurisdictions, the Company believes that it is reasonably possible that the total amount of its unrecognized income tax liability will decrease between $10 to $15 in the next 12 months.

 

The Company’s practice is to recognize interest and/or penalties related to unrecognized tax benefits as part of its income and mining tax expense. At December 31, 2017 and 2016, the total amount of accrued income-tax-related interest and penalties included in the Consolidated Balance Sheets was $19 and $16, respectively. During 2017, 2016, and 2015 the Company accrued $3,  $-, and released $1 of interest and penalties, respectively, through the Consolidated Statements of Operations.

 

Valuation of Deferred Tax Assets

 

The Company’s recent earnings history and forecasted future results, driven by its existing reserves and the forecasted long-term commodity prices, points to the full realization of those deferred tax assets in the U.S. and Australia not previously subject to a valuation allowance. We are in a cumulative three year loss in Peru and based on the declining production profile at Yanacocha, it is more likely than not that the net deferred tax assets in Peru will not be realized in the future. Accordingly, an additional valuation allowance of $40 on these assets was recognized at December 31, 2017.  

 

Due to changes the Act made to certain international tax provisions, it was prudent for the Company to restructure the holding of its non-U.S. operations for U.S. federal income tax purposes. This was accomplished by executing and filing various “check the box” elections made with respect to certain non-U.S. subsidiaries of the Company. The elections resulted in the conversions of these subsidiaries from branches and/or foreign partnerships to regarded foreign corporations. One result of these conversions is the Company no longer carries a U.S. deferred tax asset related to the investment in Yanacocha and released the valuation allowance of $292 which was originally recorded on December 31, 2016.

 

The Company determined that the realization of deferred tax assets related to certain carry forwards such as tax losses and tax pools in Canada, capital losses in the U.S. and Australia and foreign tax credits in the U.S., does not meet the more likely than not standard. Accordingly, these assets continue to be subject to a valuation allowance. At December 31, 2017, the valuation allowance related to these assets was $1,296. Realization is dependent not only on generating sufficient taxable income in the period that net deferred tax assets reverse but also on the character/classification of that income.  The alternative minimum tax was removed by the Act, and the Company’s alternative minimum tax credit carryforward will be refunded over a 5 year period. Therefore, the Company removed $48 of the remaining valuation allowance on alternative minimum tax credits for December 31, 2017. The re-measurement of the Company’s deferred tax assets due to the Tax Cuts and Jobs Act also impacted related valuation allowances; see Schedule II-Valuation and Qualifying Accounts.

 

Refer to Note 2 for additional risk factors that could impact the Company’s ability to realize the deferred tax assets. 

 

Tax Loss Carryforwards, Foreign Tax Credits, and AMT Credits

 

At December 31, 2017 and 2016, the Company had (i) $498 and $216 of net operating loss carry forwards, respectively; and (ii) $610 and $837 of tax credit carry forwards, respectively. At December 31, 2017 and 2016, $92 and $134, respectively, of net operating loss carry forwards are attributable to Australia and France for which current tax law provides no expiration period. The remaining net operating loss carry forward in Canada will expire by 2036. Valuation allowances have been recorded on net operating loss carry forwards where the Company believes, based on the available evidence, it is more likely than not that the net operating losses will not be realized.

 

Tax credit carry forwards for 2017 and 2016 of $558 and $779 consist of foreign tax credits available in the United States; substantially all such credits not utilized will expire at the end of 2027. Other credit carry forwards at the end of 2017 and 2016 in the amounts of $52 and $58, respectively, represent alternative minimum tax credits attributable to the Company’s U.S. operations for which the current tax law provides no period of expiration and which will be refunded by the end of 2023.

 

Differences in tax rates and other foreign income tax law variations make the ability to fully utilize all available foreign income tax credits on a year-by-year basis highly dependent on the selling price of the gold and copper produced by the Company and the costs of production, since lower selling prices or higher costs can result in having insufficient sources of taxable income in the United States to utilize all available foreign tax credits. Such credits have limited carry back and carry forward periods and can only be used to reduce the United States income tax imposed on foreign earnings included in the annual United States consolidated income tax return. Accordingly, a valuation allowance has been established.

 

Other

 

No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations.