20) TAX MATTERS
a) Income tax
The reconciliation between the income tax expense that would result in applying the statutory tax rate and the income tax expense recorded is as follow:
| Thousands of U.S. dollars | |||||
| For the years ended December 31, | |||||
| 2015 (*) | 2016 | 2017 | |||
| Profit/(loss) before income tax | 75,380 | 8,564 | (1,035) | ||
| Income tax applying the statutory tax rate | 21,296 | 2,484 | (310) | ||
| Permanent differences | 12,845 | 13,655 | 12,635 | ||
| Adjustments due to international tax rates | (12,541) | (11,526) | 445 | ||
| Tax credits | (497) | (791) | (1,112) | ||
| Branches income tax | 688 | 1,385 | 875 | ||
| Change in federal statutory rate in Spain (a) | 1,359 | - | - | ||
| Total income tax expense | 23,150 | 5,207 | 12,533 | ||
| (*) Exclude discontinued operations - Morroco. | |||||
| (a) This item is related to the amendment of the tax legislation in Spain that reduced the income tax rate from 28% for the calendar year of 2015 to 25% for the calendar year of 2016 and for subsequent years. | |||||
Permanent differences in 2017 are mainly related to non-deductible expenses mainly in Brazil, Spain and Mexico, which are not deductible for tax purposes.
The breakdown of the Atento Group’s income tax expense is as follow:
| Thousands of U.S. dollars | |||||
| For the years ended December 31, | |||||
| 2015 (*) | 2016 | 2017 | |||
| Current tax expense | (26,968) | (22,852) | (20,175) | ||
| Deferred tax | 3,818 | 17,645 | 7,642 | ||
| Total income tax expense | (23,150) | (5,207) | (12,533) | ||
| (*) Exclude discontinued operations – Morroco. | |||||
b) Deferred tax assets and liabilities
The breakdown and balances of deferred tax assets and deferred tax liabilities at December 31, 2016 and 2017 are as follow:
| Thousands of U.S. dollars | ||||||||||||||
| Balance at 12/31/2015 | Income Statement | Equity | Translation differences | Balance at 12/31/2016 | ||||||||||
| Increases | Decreases | Increases | Decreases | |||||||||||
| DEFERRED TAX ASSETS | 107,836 | 35,334 | (18,955) | 1,984 | (4,747) | (3,111) | 118,341 | |||||||
| Unused tax losses (*) | 13,199 | 11,376 | (2,859) | - | (4,747) | (15) | 16,954 | |||||||
| Unused tax credits | 2,483 | 875 | (56) | - | - | 391 | 3,693 | |||||||
| Deferred tax assets (temporary differences) | 92,154 | 23,084 | (16,041) | 1,984 | - | (3,487) | 97,694 | |||||||
| DEFERRED TAX LIABILITIES | (56,062) | - | 1,266 | - | 3,224 | 5,974 | (45,597) | |||||||
| Deferred tax liabilities (temporary differences) | (56,062) | - | 1,266 | - | 3,224 | 5,974 | (45,597) | |||||||
| (*) Tax credits for loss carryforwards. | ||||||||||||||
| Thousands of U.S. dollars | ||||||||||||||||||
| Balance at 12/31/2016 | Income Statement | Equity | Acquisition of Business Combinations | Others (**) | Translation differences | Balance at 12/31/2017 | ||||||||||||
| Increases | Decreases | Increases | Decreases | |||||||||||||||
| DEFERRED TAX ASSETS | 118,342 | 37,723 | (35,215) | - | - | 2,366 | (570) | 8,680 | 131,326 | |||||||||
| Unused tax losses (*) | 16,954 | 17,671 | (7,560) | - | - | 714 | (570) | 2,454 | 29,663 | |||||||||
| Unused tax credits | 3,694 | 2,171 | (815) | - | - | - | - | 331 | 5,381 | |||||||||
| Deferred tax assets (temporary differences) | 97,694 | 17,881 | (26,840) | - | - | 1,652 | - | 5,895 | 96,282 | |||||||||
| DEFERRED TAX LIABILITIES | (45,597) | (1,888) | 7,022 | - | 403 | (2,688) | - | (1,194) | (43,942) | |||||||||
| Deferred tax liabilities (temporary differences) | (45,597) | (1,888) | 7,022 | - | 403 | (2,688) | - | (1,194) | (43,942) | |||||||||
| (*) Tax credits for loss carryforwards. | ||||||||||||||||||
| (**) Refer to the use of tax losses for the purpose discharge debts of Withholding Tax (Imposto de Renda Retido na Fonte - “IRRF”), Social Integration Program (Programa de Integração Social - “PIS”), Social Security Contribution (Contribuição para Financiamento da Seguridade Social - “COFINS”), and Social Contribution Tax on Profits (Contribuição Social sobre o Lucro Líquido - “CSLL”), according to the Special Tax Regularization Program (Programa Especial de Regularização Tributária - “PERT”). This compensation was made with liability balances and therefore did not affect the income tax expense for the period. | ||||||||||||||||||
As a result of the business combination of RBrasil described in Note 5a, the Company recognized deferred tax assets amounting to 2,079 thousand U.S. dollars due to the difference between the tax value of the customer base and the fair value allocated in the business combination. Also, as a result of the business combination of Nova Interfile Holding Ltda described in Note 5b, the Company recognized deferred tax assets amounting to 2,366 thousand U.S. dollars and deferred tax liabilities of 2,688 thousand U.S. dollars due to the difference between the tax value of the customer base and the fair value allocated in the business combination.
There is not estimation of distribute future dividends until this report date. Dividends distribution must be subject to Board approval, and will depend on the Company’s future earnings, cash flow, financial condition, financial covenants and other relevant factors. There are no income tax consequences attached to the payment of dividends in either 2017 or 2016 by the Company to its shareholders.
The following table presents the schedule for the reversal of recognized and unrecognized deferred tax assets and liabilities in the statement of financial position based on the best estimates available at the respective estimation dates:
| Thousands of U.S. dollars | |||||||||||||||
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | Subsequent years | Total | |||||||
| Tax losses | 828 | 1,800 | 2,124 | 2,505 | 2,991 | 3,505 | 3,201 | 16,954 | |||||||
| Deductible temporary differences | 995 | 9,539 | 18,086 | 24,221 | 33,667 | 995 | 10,191 | 97,694 | |||||||
| Tax credits for deductions | 3,017 | 676 | - | - | - | - | - | 3,693 | |||||||
| Total deferred tax assets | 4,840 | 12,016 | 20,210 | 26,726 | 36,658 | 4,500 | 13,391 | 118,341 | |||||||
| Total deferred tax liabilities | 4,603 | 4,603 | 4,603 | 4,603 | 4,603 | 4,603 | 17,979 | 45,597 | |||||||
| Thousands of U.S. dollars | |||||||||||||||
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | Subsequent years | Total | |||||||
| Tax losses | 2,431 | 4,849 | 5,368 | 1,800 | 749 | 2,713 | 11,753 | 29,663 | |||||||
| Deductible temporary differences | 12,578 | 14,018 | 14,401 | 15,065 | 15,066 | 8,075 | 17,079 | 96,282 | |||||||
| Tax credits for deductions | 1,266 | 1,266 | 1,266 | 1,266 | 317 | - | - | 5,381 | |||||||
| Total deferred tax assets | 16,275 | 20,133 | 21,035 | 18,131 | 16,133 | 10,788 | 28,831 | 131,326 | |||||||
| Total deferred tax liabilities | 4,436 | 4,436 | 4,436 | 4,436 | 4,436 | 4,436 | 17,326 | 43,942 | |||||||
c) Taxes receivables/payables
Details of taxes receivables and payables at December 31, 2016 and 2017 are as follow:
| Thousands of U.S. dollars | |||
| As of December 31, | |||
| Receivables | 2016 | 2017 | |
| Non-current | |||
| Indirect taxes | 7,815 | 7,282 | |
| Current | |||
| Indirect taxes | 1,400 | 4,764 | |
| Other taxes | 5,052 | 7,308 | |
| Income tax | 22,145 | 21,969 | |
| Total | 36,412 | 41,323 | |
| Thousands of U.S. dollars | |||
| As of December 31, | |||
| Payables | 2016 | 2017 | |
| Non-current | |||
| Social security | 1,098 | 1,025 | |
| Current | |||
| Indirect taxes | 23,033 | 28,024 | |
| Other taxes | 45,767 | 58,142 | |
| Income tax | 4,030 | 8,058 | |
| Total | 73,928 | 95,249 | |