Entity information:
Income Taxes
Period post Split-Off
As further described in note 1, we entered into a Tax Sharing Agreement (as defined in note 12) with Liberty Global that became effective upon consummation of the Split-Off. Pursuant to the Tax Sharing Agreement, tax liabilities and benefits relating to taxable periods before and after the Split-Off will be computed and apportioned between Liberty Latin America and Liberty Global, and responsibility for payment of those tax liabilities (including any taxes attributable to the Split-Off and related internal restructurings) and use of those tax benefits will be allocated between Liberty Latin America and Liberty Global. Furthermore, the Tax Sharing Agreement sets forth the rights of Liberty Latin America and Liberty Global in respect of the preparation and filing of tax returns, the handling of audits or other tax proceedings and assistance and cooperation and other matters, in each case, for taxable periods ending on or before or that otherwise include the date of the Split-Off.
Periods prior to Split-Off
Prior to the Split-Off, the income taxes of Liberty Latin America were presented on a standalone basis, and each tax paying entity or group within Liberty Latin America was presented on a separate return basis. Liberty Latin America included Liberty Global subsidiaries that were included in combined or consolidated tax returns, including tax returns in the Netherlands (the Dutch Fiscal Unity), the U.K. (the U.K. Tax Group) and the U.S. (the U.S. Tax Group). These tax groups also included Liberty Global subsidiaries that were not included in Liberty Latin America. Certain of the entities included in the Dutch Fiscal Unity, the U.K. Tax Group and the U.S. Tax Group were included in Liberty Latin America. As a result, we recorded related-party tax allocations to recognize changes in the tax attributes of certain entities of Liberty Latin America that were included in the Dutch Fiscal Unity,
the U.K. Tax Group or the U.S. Tax Group. Prior to the July 1, 2015 completion of the LiLAC Transaction, the related-party tax allocations reflected in these consolidated financial statements were not cash settled and were not the subject of Tax Sharing Agreements. Accordingly, related-party tax allocations prior to July 1, 2015 are reflected as adjustments to accumulated net contributions (distributions) in our consolidated statements of equity.
In connection with the LiLAC Transaction, effective July 1, 2015, the allocation of tax attributes between Liberty Latin America and subsidiaries of Liberty Global that were not included in Liberty Latin America were based on a tax sharing policy. This tax sharing policy generally resulted in the allocation of a portion of Liberty Global’s tax attributes to Liberty Latin America based on the relative tax attributes of the legal entities included in Liberty Latin America. Nevertheless, to the extent that Liberty Global management concluded the actions or results of one group gave rise to changes in the tax attributes of the other group, the change in those tax attributes were generally allocated to the group whose actions or results gave rise to such changes. Similarly, in cases where legal entities in one group joined in a common tax filing with entities of the other group, changes in the tax attributes of the group that included the filing entity that were the result of the actions or financial results of one or more entities of the other group were allocated to the group that did not include the filing entity. For periods beginning on and after July 1, 2015, we did not record non-interest bearing related-party payables and receivables in connection with the allocation of tax attributes to the extent that tax assets were utilized or taxable income was included in the return for the applicable tax year. These related-party payables and receivables were expected to be cash settled annually within 90 days following the filing of the relevant tax return. Changes to previously filed tax returns will be reflected in the related-party payables and receivables, and any prior settlement of payables will be adjusted to reflect amended tax filings.
On July 11, 2017, Liberty Latin America was formed as a corporation in Bermuda where a Tax Assurance Certificate has been granted to guarantee that any imposition of income or other taxes will not be applicable to Liberty Latin America through March 31, 2035. Accordingly, Liberty Latin America does not file a primary corporate income tax return in Bermuda, although various subsidiaries in other jurisdictions are taxable on operations and do file income tax returns in their respective jurisdictions. The income taxes of Liberty Latin America are presented, prior to the Split-Off, on a separate return basis for each tax-paying entity or group.
The components of our earnings (loss) before income taxes are as follows:
 
Year ended December 31,
 
2017
 
2016
 
2015
 
in millions
 
 
 
 
 
 
U.K.
$
(188.7
)
 
$
(234.8
)
 
$
(2.3
)
Puerto Rico
(101.8
)
 
57.0

 
13.9

Chile
127.2

 
47.4

 
182.3

The Netherlands
(24.3
)
 
(42.2
)
 
(106.1
)
Barbados
(39.0
)
 
(29.7
)
 
—

Jamaica
13.3

 
(25.9
)
 
—

U.S.
(194.0
)
 
24.5

 
4.5

The Bahamas
(90.5
)
 
22.7

 
—

Panama
86.2

 
19.4

 
—

Other (a)
(239.6
)
 
63.5

 
—

Total
$
(651.2
)
 
$
(98.1
)
 
$
92.3

(a)
The amount for the year ended December 31, 2017 includes impairment charges of $191.2 million and $112.5 million in our Trinidad and Tobago and British Virgin Islands reporting units, respectively. For additional information regarding asset impairments, see note 8.

Income tax benefit (expense) consists of:
 
Current
 
Deferred
 
Total
 
in millions
Year ended December 31, 2017:
 
 
 
 
 
Chile
$
(178.6
)
 
$
(2.6
)
 
$
(181.2
)
Puerto Rico
(2.1
)
 
41.5

 
39.4

U.K.
(6.1
)
 
(0.6
)
 
(6.7
)
Barbados
(18.3
)
 
3.1

 
(15.2
)
The Netherlands
(2.6
)
 
(1.3
)
 
(3.9
)
Panama
(23.8
)
 
7.4

 
(16.4
)
Other (a)
(51.1
)
 
87.6

 
36.5

Total
$
(282.6
)
 
$
135.1

 
$
(147.5
)
Year ended December 31, 2016:
 
 
 
 
 
Chile
$
(162.6
)
 
$
(11.2
)
 
$
(173.8
)
Puerto Rico
0.2

 
(23.1
)
 
(22.9
)
U.K
(3.0
)
 
(6.4
)
 
(9.4
)
Barbados
(13.9
)
 
5.8

 
(8.1
)
The Netherlands
(0.1
)
 
(7.6
)
 
(7.7
)
Panama
(18.6
)
 
14.1

 
(4.5
)
Other (a)
(14.4
)
 
(65.1
)
 
(79.5
)
Total
$
(212.4
)
 
$
(93.5
)
 
$
(305.9
)
Year ended December 31, 2015:
 
 
 
 
 
Chile
$
(57.4
)
 
$
13.5

 
$
(43.9
)
U.S (a)
1.2

 
(9.9
)
 
(8.7
)
Puerto Rico
(3.0
)
 
8.6

 
5.6

U.K
—

 
0.5

 
0.5

Total
$
(59.2
)
 
$
12.7

 
$
(46.5
)

(a)
The amounts include (i) related-party current tax expense of Liberty Latin America of $9.4 million during 2017, (ii) related-party current tax benefit of the U.S. Tax Group of $12.0 million during 2016, (iii) related-party current tax benefit of the U.S. Tax Group of $2.1 million during the six months ended December 31, 2015 and (iii) related-party deferred tax benefit of the U.S. Tax Group of $1.5 million during the six months ended June 30, 2015. The U.S. Tax Group benefits were recorded as an adjustment of equity through June 30, 2015 and as a current receivable at subsequent balance sheet dates.


Income tax expense attributable to our earnings (loss) before income taxes differs from the amounts computed by using the applicable tax rate as a result of the following:
 
Year ended December 31,
 
2017
 
2016
 
2015
 
in millions
 
 
 
 
 
 
Computed expected tax benefit (expense) (a)
$
—

 
$
19.6

 
$
(18.7
)
Non-deductible expenses
(173.4
)
 
(155.8
)
 
(5.9
)
Basis and other differences in the treatment of items associated with investments in Liberty Latin America Group entities
5.5

 
(92.0
)
 
(9.6
)
Increase in valuation allowances
(59.0
)
 
(27.2
)
 
(14.8
)
International rate differences (a) (b)
116.4

 
(17.1
)
 
(0.6
)
Enacted tax law and rate changes (c) (d) (e) (f)
83.7

 
(4.5
)
 
1.5

Effect of non-deductible goodwill impairments
(101.9
)
 
—

 
—

Other, net
(18.8
)
 
(28.9
)
 
1.6

Total income tax expense
$
(147.5
)
 
$
(305.9
)
 
$
(46.5
)

(a)
On July 11, 2017, Liberty Latin America was formed as a corporation in Bermuda and, therefore, the “statutory” or “expected” tax rate for the 2017 tax year is 0% as the Company is exempt from income taxes on ordinary income and capital gains. However, a majority of our subsidiaries operate in jurisdictions where income tax is imposed at local applicable statutory rates. Accordingly, “international rate differences” set forth in the table above, reflects the computed tax benefit (expense) on pre-tax book income or (loss) in each taxable jurisdiction. The comparative years of 2016 and 2015 were computed on the basis that the statutory or “expected” tax rates are the U.K. rates of 20% for 2016 and 20.25% for 2015, given the organizational structure of the Company in those years. The statutory or “expected” rate for 2015 is a blended rate based on applicable U.K. rates before and after the rate change that took place on April 1 of such year.
(b)
The 2017 corporate tax rates applicable to our primary tax jurisdictions are: Chile 25.5%; Puerto Rico 39%; U.K. 19%; Barbados 2.5% and 25%; the Netherlands 25%; and Panama 25%. The corporate tax rates applicable to our Barbados operations varies as we have operations that represent different types of business entities and, accordingly, calculate tax at both 2.5% and 25%.
(c)
On January 1, 2017, legislation was enacted that changed the income tax rate in Trinidad and Tobago from 25% to 30%. Substantially all of the impact of this rate change on our deferred tax balances was recorded during the first quarter of 2017 when the change in tax law was enacted.
(d)
On December 22, 2017, the Tax Cuts and Jobs Act legislation was enacted in the U.S., which permanently reduces the corporate income tax rate to 21% (effective January 1, 2018), among other corporate income tax changes. Substantially all of the impact of this rate change on our U.S. deferred tax balances was recorded during the fourth quarter of 2017 when the change in tax law was enacted.
(e)
During 2015, the U.K. enacted legislation that will change the corporate income tax rate from the current rate of 20% to 19% in April 2017 and 18% in April 2020. Substantially all of the impact of these rate changes on Liberty Latin America’s deferred tax balances was recorded in the fourth quarter of 2015 when the change in law was enacted. During the third quarter of 2016, the U.K. enacted legislation that will further reduce the corporate income tax rate in April 2020 from 18% to 17%. Substantially all of the impact of this rate change on Liberty Latin America’s deferred tax balances was recorded during the third quarter of 2016.
(f)
The corporate tax rate applicable to our Chilean operations increased from 22.5% in 2015 to 24% in 2016 and 25.5% in 2017 and, in 2018 and future years, will increase to 27%. As of 2017, the 35% withholding tax applicable to payments made by our Chilean operations to non-resident shareholders will be based only on actual distributions to shareholders and only 65% of the actual corporate tax paid by our Chilean operations will be available to be used as a credit against this withholding tax. In the case of shareholders resident in countries that have tax treaties in force with Chile, there will be a full credit for the corporate tax paid.
Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. The components of our deferred tax assets (liabilities) are as follows:
 
December 31,
 
2017
 
2016
 
in millions
 
 
 
 
Deferred tax assets
$
138.0

 
$
103.7

Deferred tax liabilities
(533.4
)
 
(637.9
)
Net deferred tax liability
$
(395.4
)
 
$
(534.2
)


The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
 
December 31,
 
2017
 
2016
 
in millions
Deferred tax assets:
 
 
 
Net operating losses and other carryforwards
$
1,305.2

 
$
1,299.8

Debt
89.6

 
69.0

Property and equipment, net
121.8

 
68.2

Intangible assets
98.4

 
13.4

Derivative instruments
30.2

 
13.1

Other future deductible amounts
117.2

 
101.0

Deferred tax assets
1,762.4

 
1,564.5

Valuation allowance
(1,282.2
)
 
(1,328.4
)
Deferred tax assets, net of valuation allowance
480.2

 
236.1

Deferred tax liabilities:
 
 
 
Investments
(232.3
)
 
(341.2
)
Intangible assets
(300.2
)
 
(237.6
)
Property and equipment, net
(301.1
)
 
(174.5
)
Other future taxable amounts
(42.0
)
 
(17.0
)
Deferred tax liabilities
(875.6
)
 
(770.3
)
Net deferred tax liability
$
(395.4
)
 
$
(534.2
)

The changes in our valuation allowances are summarized below: 
 
Year ended December 31,
 
2017
 
2016
 
2015
 
in millions
 
 
 
 
 
 
Balance at beginning of period
$
1,328.4

 
$
70.1

 
$
67.5

Net tax expense related to operations
59.0

 
27.2

 
14.8

Translation adjustments
26.1

 
(238.0
)
 
(9.8
)
Business acquisitions and other
(131.3
)
 
1,469.1

 
(2.4
)
Balance at end of period
$
1,282.2

 
$
1,328.4

 
$
70.1


Deferred tax assets related to net operating losses may be used to offset future taxable income. The significant components of our tax loss carryforwards and related tax assets at December 31, 2017 are as follows:
Country
 
Tax loss
carryforward
 
Related
tax asset
 
Expiration
date
 
in millions
 
 
U.K.:
 
 
 
 
 
Amount attributable to capital losses
$
4,791.6

 
$
814.6

 
Indefinite
Amount attributable to net operating losses
1,313.5

 
223.3

 
Indefinite
Barbados
969.8

 
41.1

 
2018 - 2024
Jamaica
424.1

 
141.3

 
Indefinite
United States
138.6

 
31.7

 
2027 - 2037
Puerto Rico
61.2

 
23.9

 
2024 - 2027
Chile
24.5

 
6.6

 
Indefinite
Other
83.9

 
22.7

 
Various
Total
$
7,807.2

 
$
1,305.2

 
 


A valuation allowance of $1,227.5 on the net operating loss carryforwards as of December 31, 2017 has been recorded where we do not expect to generate future taxable income or where certain losses may be limited in use due to change in control or same-business tests.

Our tax loss carryforwards within each jurisdiction combine all companies’ tax losses (both capital and ordinary losses) in that jurisdiction, however, certain tax jurisdictions limit the ability to offset taxable income of a separate company or different tax group with the tax losses associated with another separate company or group. Further, tax jurisdictions restrict the type of taxable income that the above losses are able to offset.

Through our consolidated subsidiaries, we maintain a presence in many countries. Many of these countries maintain highly complex tax regimes. We have accounted for the effect of these taxes based on what we believe is reasonably expected to apply to us and our consolidated subsidiaries based on tax laws currently in effect and reasonable interpretations of these laws. Because some jurisdictions do not have systems of taxation that are as well established as the system of income taxation used in other major industrialized countries, it may be difficult to anticipate how other jurisdictions will tax our and our consolidated subsidiaries’ current and future operations.

Although we intend to take reasonable tax planning measures to limit our tax exposures, no assurance can be given that we will be able to do so.

We file income tax returns in various jurisdictions. In the normal course of business, our income tax filings are subject to review by various taxing authorities. In connection with such reviews, disputes could arise with the taxing authorities over the interpretation or application of certain income tax rules related to our business in that tax jurisdiction. Such disputes may result in future tax and interest and penalty assessments by these taxing authorities. The ultimate resolution of tax contingencies will take place upon the earlier of (i) the settlement date with the applicable taxing authorities in either cash or agreement of income tax positions or (ii) the date when the tax authorities are statutorily prohibited from adjusting the company’s tax computations.

In general, tax returns filed by, or that include, entities comprising Liberty Latin America for years prior to 2008 are no longer subject to examination by tax authorities. We are currently undergoing income tax audits in Chile, Panama, Trinidad and Tobago and certain other jurisdictions within the Caribbean and Latin America. Except as noted below, any adjustments that might arise from the foregoing examinations are not expected to have a material impact on our consolidated financial position or results of operations. At VTR, adjustments received from the Chilean tax authorities for the tax years 2011 through 2014 are in dispute. We have appealed the adjustments related to the 2011 through 2014 tax years to the Chilean tax courts.

The changes in our unrecognized tax benefits are summarized below: 
 
Year ended December 31,
 
2017
 
2016
 
2015
 
in millions
 
 
 
 
 
 
Balance at January 1
$
182.3

 
$
3.6

 
$
—

Additions for tax positions of prior years
67.6

 
136.4

 
—

Effects of business acquisitions
—

 
38.0

 
—

Additions based on tax positions related to the current year
24.0

 
10.0

 
3.9

Lapse of statute of limitations
(5.9
)
 
(6.0
)
 
—

Foreign currency translation
17.8

 
1.1

 
(0.3
)
Decrease for settlement with tax authorities
(1.0
)
 
—

 
—

Reductions for tax positions of prior years
(20.3
)
 
(0.8
)
 
—

Balance at December 31
$
264.5

 
$
182.3

 
$
3.6


No assurance can be given that any of these unrecognized tax benefits will be recognized or realized.

As of December 31, 2017, our unrecognized tax benefits included $261.1 million of tax benefits that would have a favorable impact on our effective income tax rate if ultimately recognized, after considering amounts that we would expect to be offset by valuation allowances and other factors.

During 2018, it is reasonably possible that the resolution of ongoing examinations by tax authorities as well as expiration of statutes of limitation could result in reductions to our unrecognized tax benefits related to tax positions taken as of December 31, 2017. Other than the potential impacts of ongoing examinations and the expected expiration of certain statutes of limitation, we do not expect any material changes to our unrecognized tax benefits during 2018. No assurance can be given as to the nature or impact of any changes in our unrecognized tax positions during 2018.

During 2017, 2016 and 2015, our income tax benefit (expense) includes net income tax expense of $21.6 million, $14.6 million and nil, respectively, representing the net accrual of interest and penalties during the period. Our other long-term liabilities include accrued interest and penalties of $40.7 million and $19.0 million at December 31, 2017 and 2016, respectively.