SOUTHERN COPPER CORP/ Income Taxes Disclosure

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NOTE 7—INCOME TAXES:

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Since March 2009, Grupo Mexico, through its wholly-owned subsidiary AMC, owns an interest in excess of 80% of SCC. Accordingly, SCC’s results are included in the consolidated tax return for AMC for U.S. federal income tax reporting.

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Following its policy regarding the use of estimates, the Company estimates income taxes currently payable or receivable as well as deferred income tax assets and liabilities attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The Company provides current and deferred income taxes, as if it were filing a separate U.S. federal income tax return.

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The components of the provision for income taxes for the three years ended December 31, 2025, are as follows:

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The source of income is as follows:

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The reconciliation of the statutory income tax rate to the effective tax rate for the three years ended December 31, 2025, was retrospectively changed with the adoption of Accounting Standards Update 2023-09 and is presented below in both percentage points and dollar amounts.

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The Company files income tax returns in three jurisdictions; Peru, Mexico and the United States. For the three years presented above, the statutory income tax rate for Mexico was 30%, the United States tax rate was 21%, and the Peruvian tax rate was 29.5%. While the largest components of income taxes are the Peruvian and Mexican taxes, the Company is a domestic U.S. entity. Therefore, the rate used in the above reconciliation is the U.S. statutory rate.

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For all of the years presented, both the Peruvian branch and Minera Mexico filed separate tax returns in their respective tax jurisdictions. Although the tax rules and regulations imposed in the separate tax jurisdictions may vary significantly, similar permanent items exist, such as items that are nondeductible or nontaxable. Some permanent differences relate specifically to SCC, such as the allowance in the United States for percentage depletion.

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On May 31, 2019, the Organization for Economic Cooperation and Development (“OECD”) published a two-pillar system designed to address the tax challenges created by an increasing digitalized economy. Pillar One focuses on the allocation of group profits among taxing jurisdictions based on a market-based concept rather than on historic “permanent establishment” concepts, but includes explicit exclusions for Extractives and as such, is not expected to have a material impact on the Company. Pillar Two addresses the remaining Base Erosion and Profit Shifting (“BEPS”) risk of profit shifting to entities in low tax jurisdictions by introducing a global minimum tax of 15% and a proposed tax on base eroding payments. Certain aspects of Pillar Two took effect January 1, 2024, while other aspects went into effect January 1, 2025. If jurisdictions want to implement the GloBE rules, these rules will need to be implemented through domestic legislation. The countries in which the Company has significant operations have yet to enact Pillar Two into law and have not formally announced plans to implement these rules. The Company will continue to monitor the situation and analyze the potential impact that Pillar Two will have on future results.

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Deferred taxes include the U.S., Peruvian and Mexican tax effects of the following types of temporary differences and carryforwards:

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Deferred tax assets related to leach are disclosed separately to provide greater transparency of significant components. The valuation allowance increased by $202.2 million in 2025, which was primarily due to the valuation of unutilized Foreign Tax Credits generated in 2025 and the valuation of the anticipatory foreign tax credits for the U.S. Tax effect of Peruvian deferred tax related to uncertain tax position liabilities. The Peru branch operations are taxed in the U.S. as a flow through entity to SCC. Since the Peruvian tax rate of 29.5% now exceeds the U.S. tax rate of 21%, management expects that it is more likely than not that the benefit of excess credits generated in the current year will not be realizable. 

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U.S. Tax Matters—

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On July 4, 2025, “An Act to provide for reconciliation pursuant to title II of H. Con. Res. 14” (the “Act”) – and commonly referred to as the “One Big Beautiful Bill Act” (“OBBBA”) was passed. The Act includes changes to both international and domestic tax provisions but did not change the overall corporate tax rate. The Act reduces the deduction percentages for some income inclusions as well as foreign income taxes deemed paid and limits the deductions that are allocated and apportioned to the foreign tax credit limitation within the Global Intangible Low-Taxed Income (“GILTI”) renamed Net CFC Tested Income (“NCTI”) effective January 1, 2026. The Act increases the Base Erosion and Anti-Abuse Tax (“BEAT”) rate. The Act makes changes to the foreign tax credit provisions regarding the allocation and apportionment of expenses, the treatment of certain dividends, and the inclusion of income from Controlled Foreign Corporations (CFC’s). There was no material impact from the tax law changes on the financial statements of the Company.

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As of December 31, 2025, the Company considers its ownership of the stock of Minera Mexico to be essentially permanent in duration. Income from subsidiaries, such as Minera Mexico, is included in the GILTI on a current year basis.

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GILTI imposes a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The Company has not had U.S. tax liability from the GILTI inclusion since the introduction of this tax in 2018 and does not anticipate a tax in the future because of the Mexican tax rate of 30%. No U.S. deferred taxes have been recorded as the Company has elected that if GILTI were to apply in the future, a current period expense would be recorded when incurred.

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The Base Erosion Anti-Abuse Tax (“BEAT”) is a 10% minimum tax for the years 2019 through 2025 and 10.5% in years thereafter. It is calculated on a base equal to the Company’s income determined without the tax benefit arising from base erosion payments. Since this tax was imposed in 2018 the Company has had no U.S. tax liability for BEAT since it has met the safe harbor rule that provides a Company is not to be subject to the BEAT if related party payments from the U.S. to foreign entities do not exceed 3% of expenses, excluding cost of goods sold. The Company will continue to analyze the applicability of the BEAT provisions yearly.

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As of December 31, 2025, $1,620.1 million of the Company´s total cash and cash equivalents, and short-term investments of $4,909.3 million were held in foreign subsidiaries. The cash and cash equivalents and short-term investments maintained in our foreign operations are generally used to cover local operating and investment expenses. The Company has determined that as of December 31, 2025, a deferred tax asset of approximately $566 million exists with respect to its investment in foreign subsidiaries. Tax accounting guidance provided in ASC 740 requires this asset to be recognized only if the basis difference will reverse in the foreseeable future. Management has no plans that would result in the reversal of this temporary difference and consequently, no deferred tax asset has been recorded. Future dividends from these subsidiaries may not be subject to federal income tax in the U.S., and the Company incurs no state income tax liability. Additionally, there are no withholding taxes due to the tax treaty between the United States and Mexico. Distributions of earnings from the Company's Peruvian branch to the United States are not subject to U.S. taxes on repatriation. The Company's branch operations are not foreign corporations. They are mainly comprised of operations that are branches of the Company's U.S. operations and are taxed on a current basis.

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As of December 31, 2025, there were $2,377.2 million of foreign tax credits available for carryback or carryforward. These credits have a one-year carryback and a ten-year carryforward period and can be used to reduce U.S. income tax on foreign earnings. There were no other unused U.S. tax credits as of December 31, 2025. These credits will expire if not utilized by the end of the years listed below:

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These foreign tax credits are presented above on a gross basis and have not been adjusted for any unrecognized tax benefits. In accordance with ASC 740, the Company has recorded a $2.7 million asset, which represents additional foreign tax credits for the U.S. jurisdiction for unrecognized tax benefits. Both the foreign tax credit asset and the additional foreign tax credit asset for unrecognized tax benefits have a full valuation allowance against them as of December 31, 2025. It is the expectation of management that, given that the U.S. corporate tax rate has been reduced to 21%, and considering that the corporate tax rate in Mexico is 30% and 29.5% in Peru, it is unlikely the excess foreign tax credits can be utilized. Additionally, foreign dividends may no longer be taxed in the U.S. due to the GILTI rules, now renamed Net CFC Tested Income (“NCTI”), which will reduce U.S. tax on foreign source income and limit the ability to utilize foreign tax credit carryforwards.

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Peruvian Tax Matters—

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Mining royalty charge: The royalty charge is based on operating income margins with graduated rates ranging from 1% to 12% of operating profits, with a minimum royalty charge assessed at 1% of net sales. The minimum royalty charge is recorded as cost of sales and those amounts assessed at higher rates are included in the income tax provision. The Company accrued $131.5 million, $103.4 million and $84.8 million of royalty charges in 2025, 2024 and 2023, respectively, of which $79.6 million, $57.5 million and $44.6 million were included in income taxes in 2025, 2024 and 2023, respectively.

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Peruvian special mining tax: This tax is based on operating income with graduated rates increasing from 2% to 8.4%. The Company recognized $111.8 million, $86.9 million and $71.7 million in 2025, 2024 and 2023, respectively for this tax. These amounts were included as income taxes in the Consolidated Statement of Earnings.

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Mexican Tax Matters—

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Since 2014, Mexican mining entities have been required to pay a mining royalty and an extraordinary tax. Starting 2025, the mining royalty rate is 7.5% on taxable earnings before taxes, depreciation, and interest; and the extraordinary tax rate is 1% over gross receipts from sales of gold, silver and platinum. In 2025, the mining royalty was $137.9 million, and the extraordinary tax was $1.8 million.

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Accounting for Uncertainty in Income Taxes—

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The total amount of unrecognized tax benefits in 2025, 2024 and 2023, was as follows (in millions):

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The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes within the Consolidated Statements of Earnings. For the Peruvian jurisdiction, the Company recorded $27.6 million and $17.2 million of accrued interest and penalties in 2025 and 2024, respectively. For the Mexican jurisdiction, the Company removed $1.4 million and accrued $5.9 million of accrued interest and penalties in 2025 and 2024, respectively. There were no interest or penalties accrued in the U.S. jurisdiction for uncertain tax positions in any of the years presented above.

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The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $44.4 million as of December 31, 2025 and relates to the Peruvian and Mexican jurisdictions.

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Unrecognized tax benefits in the U.S. jurisdiction entails an asset of $2.7 million, which represents a fully valued additional foreign tax credit carryforward that would be generated by uncertain tax positions. Offsetting expense related to the change in liability for uncertain tax positions within the U.S. jurisdiction and the change in valuation allowance of the U.S. deferred tax asset for foreign tax credits was presented as a net amount in the components of income taxes.

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The Company expects that foreign exchange rates will have an impact on the amount of unrecognized tax benefits in the Peruvian and Mexican jurisdictions.

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As of December 31, 2025, the Company’s liability for uncertain tax positions included penalties and interest of $3.2 million in the Peruvian jurisdiction and $2.8 million in the Mexican jurisdiction. There was no liability for uncertain tax positions penalties and interest for the U.S. jurisdiction as of December 31, 2025. Interest and penalties are not included in the table of unrecognized tax benefits above.

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The following tax years remain open to examination and adjustment in the Company’s three major tax jurisdictions:

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Management does not expect that any of the open years will result in a cash payment within the U.S. or Mexican jurisdictions in the upcoming twelve months ending December 31, 2026. Management expects to make cash payments of $13.6 million within the Peruvian jurisdiction in the upcoming twelve months ending December 31, 2026.