| 23 | Income tax and social contribution |
| a) | Reconciliation of income and social contribution tax expenses: |
| December 31, 2017 |
December 31, 2016 |
December 31, 2015 |
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Profit before taxes |
1,474,652 | 555,987 | 668,484 | |||||||||
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Income tax and social contribution at nominal rate (34%) |
(501,382 | ) | (189,036 | ) | (227,285 | ) | ||||||
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Adjustments to reconcile nominal and effective tax rate |
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Interest in earnings of investees (non-taxable income) |
340,766 | 532,335 | 239,069 | |||||||||
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Differences in tax rates on earnings / losses of overseas companies |
(89,070 | ) | (150,233 | ) | 24,699 | |||||||
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Granted income tax incentive |
74,416 | 10,098 | 20,219 | |||||||||
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Share-based payment transactions |
(4,022 | ) | (3,950 | ) | (4,305 | ) | ||||||
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Interest on shareholders’ equity |
(21,495 | ) | (45,573 | ) | (10,375 | ) | ||||||
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Non-deductible expenses (donations, gifts, etc.) |
(52,226 | ) | (28,103 | ) | (30,878 | ) | ||||||
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Tax losses not recorded(i) |
(177,824 | ) | (185,089 | ) | (95,752 | ) | ||||||
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Compensation action |
— | — | 114,844 | |||||||||
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Goodwill amortization effect |
1,853 | 1,853 | — | |||||||||
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Tax effects of discounts granted - PERT |
(4,438 | ) | — | — | ||||||||
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Tax loss carryforwards from previous years recorded |
(3,554 | ) | — | — | ||||||||
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Other |
8,621 | (4,004 | ) | 174 | ||||||||
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Income tax and social contribution benefit (expense) - current and deferred |
(428,355 | ) | (61,702 | ) | 30,410 | |||||||
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Effective rate - % |
(29.05 | ) | (11.10 | ) | 4.55 | |||||||
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| (i) | Refers mainly to tax losses not recorded in subsidiaries of Rumo which under current conditions do not attend the requirements of future taxable profits that justify the recognition of the deferred tax assets. In accordance with Brazilian Federal Taxes rules those losses do not expire. |
| b) | Deferred income tax assets and liabilities: |
| December 31, 2017 |
December 31, 2016 |
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Assets credit of: |
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Income tax loss carry forwards |
2,112,707 | 1,900,366 | ||||||
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Social contribution tax loss carry forwards |
772,304 | 704,480 | ||||||
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Temporary differences |
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Foreign exchange—Loans and borrowings |
548,568 | 590,696 | ||||||
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Legal proceedings provision |
365,997 | 367,060 | ||||||
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Tax deductible goodwill |
56,276 | 225,104 | ||||||
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Impairment provision |
250,236 | 319,070 | ||||||
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Provisions for employee benefits |
153,434 | 138,655 | ||||||
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Allowance for doubtful accounts |
25,991 | 77,168 | ||||||
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Regulatory asset (liability) |
65,318 | 71,039 | ||||||
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Impairment of tax credit |
61,324 | 51,057 | ||||||
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Share-based payment transactions |
291 | — | ||||||
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Profit sharing |
41,506 | 28,732 | ||||||
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Interest on preferred shareholders payable in subsidiaries |
218,599 | 219,019 | ||||||
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Property, plant and equipment—useful life review |
160,490 | 27,987 | ||||||
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Contractual dispute |
115,490 | 120,952 | ||||||
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Other |
297,932 | 264,094 | ||||||
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Total |
5,246,463 | 5,105,479 | ||||||
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(-) Deferred taxes assets not recognized |
(1,961,325 | ) | (1,781,670 | ) | ||||
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Liabilities credit of: |
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Temporary differences |
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Business combination—property, plant and equipment |
110,149 | 144,952 | ||||||
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Tax deductible goodwill |
(369,044 | ) | (348,192 | ) | ||||
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Lease |
(277,091 | ) | (138,525 | ) | ||||
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Concession contract |
(8,681 | ) | (10,617 | ) | ||||
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Unrealized gains on derivatives instruments |
(102,410 | ) | (47,757 | ) | ||||
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Income on formation of joint ventures |
(1,135,036 | ) | (1,135,036 | ) | ||||
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Business combination—Intangible asset |
(3,723,742 | ) | (3,764,925 | ) | ||||
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Other |
(45,513 | ) | (84,272 | ) | ||||
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Total |
(5,551,368 | ) | (5,384,372 | ) | ||||
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Total of deferred taxes recorded |
(2,266,230 | ) | (2,060,563 | ) | ||||
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Deferred income tax—Assets |
1,636,080 | 1,490,002 | ||||||
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Deferred income tax—Liabilities |
(3,902,310 | ) | (3,550,565 | ) | ||||
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| c) | Changes in deferred income taxes, net: |
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At January 1, 2016 |
(2,434,456 | ) | ||
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Recorded through income |
166,932 | |||
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Other comprehensive income |
28,988 | |||
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Discontinued operation |
158,164 | |||
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Business combinations |
(32,371 | ) | ||
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Other (i) |
52,180 | |||
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At December 31, 2016 |
(2,060,563 | ) | ||
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Recorded through income |
(426,341 | ) | ||
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Property, plant and equipment—useful life review |
132,503 | |||
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Other comprehensive income |
8,201 | |||
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Tax loss carryforwards used to settle other tax installments |
3,555 | |||
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Tax loss carryforwards over change of shareholding interest in subsidiary |
60,583 | |||
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Other (i) |
15,832 | |||
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At December 31, 2017 |
(2,266,230 | ) | ||
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| (i) | Exchange variation effect due to the conversion of offshore investments. |
| d) | Recoverability of deferred income tax and social contribution |
In assessing the recoverability of deferred taxes, management considers the projections of future taxable income and the movements of temporary differences. When it is not probable that part or all of the taxes will be realized, the tax asset is reversed. There is no deadline for the use of tax loss carryforwards and negative bases, but the use of these accumulated losses of previous years is limited to 30% of annual taxable profits.