| 35. | Income Taxes |
(a) Income tax expense for the years ended December 31, 2015, 2016 and 2017 was as follows:
| 2015 | 2016 | 2017 | ||||||||||
| (in millions of Won) | ||||||||||||
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Current income taxes |
￦ | 553,041 | 699,269 | 864,143 | ||||||||
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Deferred income tax due to temporary differences |
(253,860 | ) | (209,706 | ) | 300,037 | |||||||
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Items recorded directly in equity |
(32,621 | ) | (110,019 | ) | 21,560 | |||||||
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Income tax expense |
￦ | 266,560 | 379,544 | 1,185,740 | ||||||||
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(b) The income taxes credited (charged) directly to equity for the years ended December 31, 2015, 2016 and 2017 were as follows:
| 2015 | 2016 | 2017 | ||||||||||
| (in millions of Won) | ||||||||||||
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Net changes in the unrealized fair value of available-for-sale investments |
￦ | 60,077 | (100,550 | ) | 1,271 | |||||||
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Loss (gain) on sale of treasury shares |
12 | (10 | ) | (40 | ) | |||||||
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Other capital surplus |
(86,765 | ) | — | — | ||||||||
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Others |
(5,945 | ) | (9,459 | ) | 20,329 | |||||||
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| ￦ | (32,621 | ) | (110,019 | ) | 21,560 | |||||||
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(c) The following table reconciles the calculated income tax expense based on POSCO’s statutory rate (24.2%) to the actual amount of taxes recorded by the Company for the years ended December 31, 2015, 2016 and 2017.
| 2015 | 2016 | 2017 | ||||||||||
| (in millions of Won) | ||||||||||||
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Profit before income tax expense |
￦ | 150,345 | 1,411,609 | 4,095,051 | ||||||||
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Income tax expense computed at statutory rate |
35,921 | 341,148 | 990,540 | |||||||||
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Adjustments: |
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Tax credits |
(152,139 | ) | (30,124 | ) | (40,757 | ) | ||||||
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Over provisions from prior years |
(47,053 | ) | (11,829 | ) | (20,912 | ) | ||||||
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Investment in subsidiaries, associates and joint ventures |
439,575 | 76,751 | 55,113 | |||||||||
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Tax effects due to permanent differences |
(26,045 | ) | (9,962 | ) | 4,798 | |||||||
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Effect of tax rate change (*1) |
— | — | 175,647 | |||||||||
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Others |
16,301 | 13,560 | 21,311 | |||||||||
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| 230,639 | 38,396 | 195,200 | ||||||||||
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Income tax expense |
￦ | 266,560 | 379,544 | 1,185,740 | ||||||||
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Effective tax rate (%) |
177.30 | % | 26.89 | % | 28.96 | % | ||||||
| (*1) | During the year ended December 31, 2017, the statutory rate changed from 24.2% to 27.5% for taxable income in excess of ￦300,000 million was enacted as a result of a revision to Korean tax law, which will be effective from 2018. |
(d) The movements in deferred tax assets (liabilities) for the years ended December 31, 2016 and 2017 were as follows:
| 2016 | 2017 | |||||||||||||||||||||||
| Beginning | Inc. (Dec.) | Ending | Beginning | Inc. (Dec.) | Ending | |||||||||||||||||||
| (in millions of Won) | ||||||||||||||||||||||||
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Deferred income tax due to temporary differences |
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Allowance for doubtful accounts |
￦ | 202,592 | 10,527 | 213,119 | 213,119 | 60,875 | 273,994 | |||||||||||||||||
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Reserve for technology developments |
(177,676 | ) | 85,716 | (91,960 | ) | (91,960 | ) | 53,973 | (37,987 | ) | ||||||||||||||
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PP&E — Depreciation |
(15,240 | ) | 3,601 | (11,639 | ) | (11,639 | ) | 26,280 | 14,641 | |||||||||||||||
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Share of profit or loss of equity-accounted investees |
(45,174 | ) | 115,433 | 70,259 | 70,259 | 125,783 | 196,042 | |||||||||||||||||
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Allowance for inventories valuation |
13,373 | 2,278 | 15,651 | 15,651 | (4,871 | ) | 10,780 | |||||||||||||||||
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PP&E — Revaluation |
(1,393,501 | ) | (130,648 | ) | (1,524,149 | ) | (1,524,149 | ) | (304,015 | ) | (1,828,164 | ) | ||||||||||||
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Prepaid expenses |
19,180 | 485 | 19,665 | 19,665 | 335 | 20,000 | ||||||||||||||||||
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PP&E — Impairment loss |
8,055 | (2,760 | ) | 5,295 | 5,295 | 245 | 5,540 | |||||||||||||||||
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Gain or loss on foreign currency translation |
(29,355 | ) | 23,398 | (5,957 | ) | (5,957 | ) | (42,515 | ) | (48,472 | ) | |||||||||||||
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Defined benefit obligations |
354,175 | 7,663 | 361,838 | 361,838 | 68,279 | 430,117 | ||||||||||||||||||
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Plan assets |
(287,839 | ) | (28,686 | ) | (316,525 | ) | (316,525 | ) | (36,129 | ) | (352,654 | ) | ||||||||||||
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Provision for construction losses |
612 | 385 | 997 | 997 | (556 | ) | 441 | |||||||||||||||||
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Provision for construction warranty |
21,604 | 2,718 | 24,322 | 24,322 | 4,395 | 28,717 | ||||||||||||||||||
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Accrued income |
(8,982 | ) | (459 | ) | (9,441 | ) | (9,441 | ) | (3,474 | ) | (12,915 | ) | ||||||||||||
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Impairment loss on AFS |
266,474 | (21,306 | ) | 245,168 | 245,168 | (42,373 | ) | 202,795 | ||||||||||||||||
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Difference in acquisition costs of treasury shares |
62,116 | (17 | ) | 62,099 | 62,099 | 8,448 | 70,547 | |||||||||||||||||
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Others |
296,207 | 107,541 | 403,748 | 403,748 | (27,740 | ) | 376,008 | |||||||||||||||||
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| (713,379 | ) | 175,869 | (537,510 | ) | (537,510 | ) | (113,060 | ) | (650,570 | ) | ||||||||||||||
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Deferred income taxes recognized directly to equity |
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Loss (gain) on valuation of available-for-sale investments |
50,043 | (100,550 | ) | (50,507 | ) | (50,507 | ) | 1,271 | (49,236 | ) | ||||||||||||||
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Others |
61,291 | (9,459 | ) | 51,832 | 51,832 | 20,329 | 72,161 | |||||||||||||||||
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| 111,334 | (110,009 | ) | 1,325 | 1,325 | 21,600 | 22,925 | ||||||||||||||||||
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Deferred tax from tax credit |
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Tax credit carry-forward and others |
277,261 | 30,074 | 307,335 | 307,335 | (189,303 | ) | 118,032 | |||||||||||||||||
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Investments in subsidiaries, associates and joint ventures |
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Investments in subsidiaries, associates and joint ventures |
(18,089 | ) | 104,219 | 86,130 | 86,130 | (17,704 | ) | 68,426 | ||||||||||||||||
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| ￦ | (342,873 | ) | 200,153 | (142,720 | ) | (142,720 | ) | (298,467 | ) | (441,187 | ) | |||||||||||||
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(e) Deferred tax assets and liabilities as of December 31, 2016 and 2017 are as follows:
| 2016 | 2017 | |||||||||||||||||||||||
| Assets | Liabilities | Net | Assets | Liabilities | Net | |||||||||||||||||||
| (in millions of Won) | ||||||||||||||||||||||||
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Deferred income tax due to temporary differences |
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Allowance for doubtful accounts |
￦ | 213,119 | — | 213,119 | 273,994 | — | 273,994 | |||||||||||||||||
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Reserve for technology developments |
— | (91,960 | ) | (91,960 | ) | — | (37,987 | ) | (37,987 | ) | ||||||||||||||
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PP&E — Depreciation |
50,843 | (62,482 | ) | (11,639 | ) | 59,912 | (45,271 | ) | 14,641 | |||||||||||||||
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Share of profit or loss of equity-accounted investees |
178,538 | (108,279 | ) | 70,259 | 236,637 | (40,595 | ) | 196,042 | ||||||||||||||||
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Allowance for inventories valuation |
15,651 | — | 15,651 | 10,780 | — | 10,780 | ||||||||||||||||||
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PP&E — Revaluation |
— | (1,524,149 | ) | (1,524,149 | ) | — | (1,828,164 | ) | (1,828,164 | ) | ||||||||||||||
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Prepaid expenses |
19,665 | — | 19,665 | 20,000 | — | 20,000 | ||||||||||||||||||
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PP&E — Impairment loss |
5,397 | (102 | ) | 5,295 | 5,639 | (99 | ) | 5,540 | ||||||||||||||||
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Gain or loss on foreign currency translation |
99,836 | (105,793 | ) | (5,957 | ) | 113,760 | (162,232 | ) | (48,472 | ) | ||||||||||||||
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Defined benefit obligations |
361,838 | — | 361,838 | 430,117 | — | 430,117 | ||||||||||||||||||
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Plan assets |
— | (316,525 | ) | (316,525 | ) | — | (352,654 | ) | (352,654 | ) | ||||||||||||||
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Provision for construction losses |
997 | — | 997 | 441 | — | 441 | ||||||||||||||||||
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Provision for construction warranty |
24,322 | — | 24,322 | 28,717 | — | 28,717 | ||||||||||||||||||
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Accrued income |
— | (9,441 | ) | (9,441 | ) | — | (12,915 | ) | (12,915 | ) | ||||||||||||||
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Impairment loss on AFS |
245,168 | — | 245,168 | 202,795 | — | 202,795 | ||||||||||||||||||
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Difference in acquisition costs of treasury shares |
62,099 | — | 62,099 | 70,547 | — | 70,547 | ||||||||||||||||||
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Others |
452,425 | (48,677 | ) | 403,748 | 473,025 | (97,017 | ) | 376,008 | ||||||||||||||||
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| 1,729,898 | (2,267,408 | ) | (537,510 | ) | 1,926,364 | (2,576,934 | ) | (650,570 | ) | |||||||||||||||
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Deferred income taxes recognized directly to equity |
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Loss (gain) on valuation of available-for-sale investments |
50,245 | (100,752 | ) | (50,507 | ) | 110,865 | (160,101 | ) | (49,236 | ) | ||||||||||||||
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Others |
65,532 | (13,700 | ) | 51,832 | 92,981 | (20,820 | ) | 72,161 | ||||||||||||||||
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| 115,777 | (114,452 | ) | 1,325 | 203,846 | (180,921 | ) | 22,925 | |||||||||||||||||
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Deferred tax from tax credit |
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Tax credit carry-forward and others |
307,335 | — | 307,335 | 118,032 | — | 118,032 | ||||||||||||||||||
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Investments in subsidiaries, associates and joint ventures |
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Investments in subsidiaries, associates and joint ventures |
561,506 | (475,376 | ) | 86,130 | 563,406 | (494,980 | ) | 68,426 | ||||||||||||||||
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| ￦ | 2,714,516 | (2,857,236 | ) | (142,720 | ) | 2,811,648 | (3,252,835 | ) | (441,187 | ) | ||||||||||||||
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(f) As of December 31, 2016 and 2017, The Company did not recognize income tax effects associated with deductible temporary differences of ￦4,612,900 million and ￦5,300,667 million, respectively, mainly relating to loss of subsidiaries and associates because realization is not considered probable. As of December 31, 2016 and 2017, the Company did not recognize income tax effects associated with taxable temporary differences of ￦3,933,428 million and ￦4,362,127 million (deferred tax liabilities of￦951,890 million and ￦1,137,632 million), respectively, mainly relating to increase in retained earnings of subsidiaries since it is probable that the temporary difference will not reverse in the foreseeable future.