a) Calculation of income tax and social contribution charges
| R$ thousand | |||
| Years ended December 31 | |||
| 2017 | 2016 | 2015 | |
| Income before income tax and social contribution | 23,743,559 | 31,905,456 | 9,603,583 |
| Total burden of income tax and social contribution at the current rates (1) | (10,684,602) | (14,357,455) | (4,321,612) |
| Effect of additions and exclusions in the tax calculation: |
|
|
|
| Earnings (losses) of associates and joint ventures | 773,285 | 764,876 | 687,623 |
| Interest on shareholders' equity (paid and payable) | 3,241,955 | 3,139,102 | 2,305,695 |
| Net tax credit of deferred liabilities (2) |
|
| 2,341,220 |
| Other amounts (3) | 240,406 | (3,459,253) | 7,621,396 |
| Income tax and social contribution for the period | (6,428,956) | (13,912,730) | 8,634,322 |
| Effective rate | 27.1% | 43.6% | -89.9% |
(1) Current rates: (i) 25% for income tax; (ii) of 15% for the social contribution to financial and equated companies, and of the insurance industry, and of 20%, from September 2015 to December 2018, in accordance with Law no 13,169/15; and (iii) of 9% for the other companies (Note 2w);
(2) In 2015, refers to, constitution of deferred tax assets, net of deferred liabilities, related to the increase in the social contribution tax rate, according to Law no 13,169/15; and
(3) Basically, includes, (i) the exchange rate variation of assets and liabilities, derived from investments abroad; (ii) the equalization of the effective rate of social contribution in relation to the rate of 45% shown; and (iii) the deduction incentives.
b) Composition of income tax and social contribution in the consolidated statement of income
| R$ thousand | |||
| Years ended December 31 | |||
| 2017 | 2016 | 2015 | |
| Current taxes: |
|
|
|
| Income tax and social contribution payable | (8,788,060) | (8,852,947) | (6,075,948) |
| Deferred taxes: |
|
|
|
| Net Addition/(realization) of temporary differences | 2,950,961 | (4,106,008) | 11,424,595 |
| Use of opening balances of: |
|
|
|
| Social contribution loss | (430,584) | (647,282) | (127,214) |
| Income tax loss | (331,512) | (879,276) | (65,224) |
| Addition on: |
|
|
|
| Social contribution loss | 150,371 | 234,730 | 272,793 |
| Income tax loss | 19,868 | 338,053 | 731,419 |
| Activation of the tax credit - Law No. 13,169/15: |
|
|
|
| Social contribution loss | - | - | 422,853 |
| Temporary additions | - | - | 2,051,048 |
| Total deferred tax expense | 2,359,104 | (5,059,783) | 14,710,270 |
| Income tax and social contribution | (6,428,956) | (13,912,730) | 8,634,322 |
c) Deferred income tax and social contribution presented in the consolidated statement of financial position
| R$ thousand | ||||
| Balance on December 31, 2016 | Amount recorded | Realized / Decrease (4) | Balance on December 31, 2017 | |
| Provisions of impairment of loans and advances | 23,011,653 | 12,264,028 | 8,771,818 | 26,503,863 |
| Provision for contingencies | 7,351,234 | 1,782,500 | 1,907,251 | 7,226,483 |
| Adjustment to market value of securities | 5,488,482 | 1,724,016 | 3,268,623 | 3,943,875 |
| Other | 4,681,457 | 4,773,082 | 3,644,973 | 5,809,566 |
| Total tax assets on temporary differences (3) | 40,532,826 | 20,543,626 | 17,592,665 | 43,483,787 |
| Income tax and social contribution losses in Brazil and abroad (3) | 5,595,729 | 170,239 | 762,096 | 5,003,872 |
| Adjustment to market value of available for sale (3) | 493,168 | 576,732 | 1,069,900 | - |
| Total deferred tax assets (2) | 46,621,723 | 21,290,597 | 19,424,661 | 48,487,659 |
| Deferred tax liabilities (2) | 3,267,808 | 3,557,618 | 817,831 | 6,007,595 |
| Net deferred taxes (2) | 43,353,915 | 17,732,979 | 18,606,830 | 42,480,064 |
| R$ thousand | |||||
| Balance on December 31, 2015 | Balance originating from an acquired institution (1) | Amount recorded | Realized / Decrease | Balance on December 31, 2016 | |
| Provisions of impairment of loans and advances | 22,617,097 | 3,938,976 | 12,948,736 | 16,493,156 | 23,011,653 |
| Provision for contingencies | 5,720,598 | 1,209,685 | 2,498,218 | 2,077,267 | 7,351,234 |
| Adjustment to market value of securities | 7,090,939 | 109,501 | 282,741 | 1,994,699 | 5,488,482 |
| Other | 3,511,581 | 440,457 | 3,135,635 | 2,406,216 | 4,681,457 |
| Total tax assets on temporary differences (3) | 38,940,215 | 5,698,619 | 18,865,330 | 22,971,338 | 40,532,826 |
| Income tax and social contribution losses in Brazil and abroad (3) | 5,761,626 | 787,878 | 572,783 | 1,526,558 | 5,595,729 |
| Adjustment to market value of available for sale (3) | 2,704,484 | 32,120 | 393,369 | 2,636,805 | 493,168 |
| Social contribution - MP 2,158-35 (change in tax law) | 113,783 | - | - | 113,783 | - |
| Total deferred tax assets (2) | 47,520,108 | 6,518,617 | 19,831,482 | 27,248,484 | 46,621,723 |
| Deferred tax liabilities (2) | 2,894,367 | 3,592 | 1,920,479 | 1,550,630 | 3,267,808 |
| Net deferred taxes (2) | 44,625,741 | 6,515,025 | 17,911,003 | 25,697,854 | 43,353,915 |
(1) HSBC Brasil (Note 2a);
(2) Deferred income and social contribution tax assets and liabilities are offset in the balance sheet by taxable entity, and were R$ 4,755,748 thousand in 2017 and R$ 1,504,860 thousand in 2016;
(3) Deferred tax assets of financial and similar companies and insurance industry were established considering the increase of the social contribution rate, determined by Law 11.727/08 and Law 13.169/15 (Note 2 x); and
(4) Includes a write-off of tax credits, in the amount of R$ 150,040 thousand.
d) Expected realization of deferred tax assets on temporary differences, tax loss and negative basis of social contribution
| R$ thousand | ||||||
| Temporary differences | Income tax and social contribution losses | Total | ||||
| Income tax | Social contribution | Income tax | Social contribution | |||
| 2018 | 6,189,592 | 4,778,522 | 157,668 | 303,794 | 11,429,576 | |
| 2019 | 6,106,611 | 3,500,573 | 143,705 | 80,058 | 9,830,947 | |
| 2020 | 5,444,841 | 3,163,487 | 139,825 | 78,361 | 8,826,514 | |
| 2021 | 4,408,140 | 2,609,808 | 620,279 | 367,041 | 8,005,268 | |
| 2022 | 2,534,237 | 1,470,379 | 732,490 | 478,318 | 5,215,424 | |
| After 2022 | 2,100,881 | 1,176,716 | 824,042 | 1,078,291 | 5,179,930 | |
| Total | 26,784,302 | 16,699,485 | 2,618,009 | 2,385,863 | 48,487,659 | |
e) Deferred tax liabilities
| R$ thousand | ||
| On December 31 | ||
| 2017 | 2016 | |
| Timing differences of depreciation - finance leasing | 283,232 | 381,119 |
| Adjustment to market value of securities | 1,215,588 | 213,404 |
| Judicial deposit and others | 4,508,775 | 2,673,285 |
| Total | 6,007,595 | 3,267,808 |
The deferred tax liabilities of companies in the financial and insurance sectors were established considering the increased social contribution rate, established by Law no 11,727/08 and Law no 13,169/15 (Note 2x).
f) Income tax and social contribution on adjustments recognized directly in equity
| R$ thousand | |||||||||
| On December 31, 2017 | On December 31, 2016 | On December 31, 2015 | |||||||
| Before tax | Tax (expense)/ benefit | Net of tax | Before tax | Tax (expense)/ benefit | Net of tax | Before tax | Tax (expense)/ benefit | Net of tax | |
| Financial assets recorded as available for sale | 3,418,567 | (1,231,202) | 2,187,365 | 6,298,103 | (2,587,076) | 3,711,027 | (5,677,902) | 2,273,982 | (3,403,920) |
| Exchange differences on translations of foreign operations | 23,010 | 5,992 | 29,002 | (194,566) | 87,555 | (107,011) | 118,485 | (57,788) | 60,697 |
| Total | 3,441,577 | (1,225,210) | 2,216,367 | 6,103,537 | (2,499,521) | 3,604,016 | (5,559,417) | 2,216,194 | (3,343,223) |
g) Taxes to be offset
Refers basically to amount of income tax and social contribution to be offset.