AES CORPAES

AES CORP Income Taxes Disclosure

10-KFiled Mar 2, 202610 min read
INCOME TAXES
Income Tax Provision — The following table summarizes the expense/(benefit) for income taxes on continuing operations for the periods indicated (in millions):
December 31, 202520242023
Federal:Current$(5)$4 $9 
Deferred(451)(220)15 
State:Current2 29 16 
Deferred6 23 30 
Foreign:Current320 249 289 
Deferred(53)(26)(98)
Total$(181)$59 $261 
Effective and Statutory Rate Reconciliation — The following table summarizes a reconciliation of the U.S. statutory federal income tax expense/(benefit) and rate to the Company’s effective income tax expense/(benefit) and
rate, expressed as both amounts and percentages of income from continuing operations before income taxes, for the year ended December 31, 2025, following the prospective adoption of ASU 2023‑09:
December 31, 2025
AmountPercent
Statutory Federal tax rate $16 21 %
State and Local Income Taxes, Net of Federal Income Tax Effects (1)
6 8 %
Foreign Tax Effects
Argentina
Inflationary adjustments20 27 %
Valuation allowance(50)(67)%
Other23 31 %
Bulgaria28 37 %
Chile
Foreign Tax Credits(35)(47)%
Foreign Dividends35 47 %
Other23 31 %
Colombia
Tax rate differential27 36 %
Other1 1 %
Vietnam
Tax rate differential(53)(71)%
Other(11)(15)%
Other Foreign Jurisdictions50 67 %
Effect of Changes in Tax Laws or Rates Enacted in the Current Period— — %
Effect of Cross-Border Tax Laws7 9 %
Tax Credits
U.S. Investment Tax Credits(593)(791)%
Other(1)(1)%
Changes in Valuation Allowances120 160 %
Nontaxable or Nondeductible Items3 4 %
Changes in Unrecognized Tax Benefits6 8 %
Other Adjustments
Tax basis reduction on Investment Tax Credit67 89 %
U.S. capital losses(121)(161)%
Noncontrolling interest in U.S. subsidiaries244 325 %
Other7 9 %
Effective Tax Rate
$(181)(241)%
(1)State taxes in New York, Utah, and Ohio Municipalities made up the majority (greater than 50 percent) of the tax effect in this category.

For 2025, the $(593) million U.S. Investment Tax Credits item relates to investment tax credits for renewables projects placed in service this year, and it is partially offset by the $67 million of Tax basis reduction on Investment Tax Credit item. The $(121) million U.S. capital losses item relates to capital losses associated with the sale of an indirect equity interest in AES Ohio, which is fully offset within the $120 million valuation allowance item.
The following table summarizes a reconciliation of the U.S. statutory federal income tax rate to the Company's effective tax rate as a percentage of income from continuing operations before taxes for years prior to the adoption of ASU 2023-09:
December 31, 20242023
Statutory Federal tax rate21 %21 %
State and Local Income Taxes, Net of Federal Income Tax Effects(2)%87 %
Taxes on foreign earnings
(10)%14 %
Valuation allowance52 %83 %
U.S. Investment Tax Credit(31)%(70)%
Noncontrolling interest in U.S. subsidiaries25 %115 %
Nondeductible goodwill impairments— %3 %
U.S. capital loss(41)%— %
U.S. interest expense(5)%— %
Other—net(2)%(2)%
Effective tax rate
7 %251 %
For 2024, the (31)% U.S. Investment Tax Credit relates to investment tax credits for renewables projects placed in service in the prior year. The (41)% U.S. capital loss relates to capital losses associated with the restructuring of a foreign holding company, which is offset in part by valuation allowance of approximately $304 million. The associated state impact is included in the (2)% state taxes, net of Federal tax benefit and is offset by valuation allowance of $74 million. Further, included in the (10)% taxes on foreign earnings is approximately $42 million of income tax benefit for the tax over book investment basis difference related to Ventanas.
For 2023, included in the 14% taxes on foreign earnings are inflationary and foreign currency benefits at our Argentine businesses. Further, the Company recorded tax expense associated with the change in realizability of deferred tax assets at certain of those Argentine businesses, which is included in the 83% valuation allowance item. The (70)% U.S. Investment Tax Credit relates to investment tax credits for renewables projects placed in service in 2023. Not included in the 2023 effective tax rate is $28 million of income tax expense recorded to additional paid-in capital resulting from the Company's sales of a 20% ownership interest in AES Dominicana and a 35% ownership interest in Colon. See Note 18—Equity for details of the sales.
Income Tax Receivables and Payables — The current income taxes receivable and payable are included in Other current assets and Accrued and other liabilities, respectively, on the accompanying Consolidated Balance Sheets. The noncurrent income taxes receivable and payable are included in Other noncurrent assets and Other noncurrent liabilities, respectively, on the accompanying Consolidated Balance Sheets. The following table summarizes the income taxes receivable and payable as of the periods indicated (in millions):
December 31,20252024
Income taxes receivable—current$69 $85 
Income taxes receivable—noncurrent19 32 
Total income taxes receivable$88 $117 
Income taxes payable—current$117 $71 
Income taxes payable—noncurrent— — 
Total income taxes payable$117 $71 
Deferred Income Taxes — Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and (b) operating loss and tax credit carryforwards. These items are stated at the enacted tax rates that are expected to be in effect when taxes are actually paid or recovered.
As of December 31, 2025, the Company had federal net operating loss carryforwards for tax return purposes of approximately $1.3 billion, which carry forward indefinitely. The Company also had capital loss carryforwards of approximately $2.1 billion, which expire in 2029 and 2030. Further, the Company had federal general business tax credit carryforwards of approximately $76 million, which expire primarily in 2040 and beyond. The Company had state net operating loss carryforwards as of December 31, 2025 of approximately $4.9 billion expiring primarily in years 2026 to 2045. As of December 31, 2025, the Company had foreign net operating loss carryforwards of approximately $3 billion that expire at various times beginning in 2026 and some of which carry forward without expiration.
Valuation allowances increased $141 million during 2025 to $1,054 million at December 31, 2025. This net increase was primarily due to valuation allowance resulting from current period U.S. capital losses associated with the sale of an indirect equity interest in AES Ohio.
Valuation allowances increased $241 million during 2024 to $913 million at December 31, 2024. This net increase was primarily due to valuation allowance resulting from prior year U.S. capital losses associated with the restructuring of a foreign holding company, partially offset by valuation allowance change related to the sale of AES Brasil.
The Company believes that it is more likely than not that the net deferred tax assets as shown below will be realized when future taxable income is generated through the reversal of existing taxable temporary differences and income that is expected to be generated by businesses that have long-term contracts or a history of generating taxable income.
The following table summarizes deferred tax assets and liabilities, as of the periods indicated (in millions):
December 31, 20252024
Differences between book and tax basis of property$(1,193)$(1,104)
Investment in U.S. tax partnerships(1,020)(785)
Other taxable temporary differences(383)(438)
Total deferred tax liability(2,596)(2,327)
Operating loss carryforwards1,219 933 
Capital loss carryforwards609 501 
Bad debt and other book provisions81 91 
Tax credit carryforwards71 48 
Other deductible temporary differences486 542 
Total gross deferred tax asset2,466 2,115 
Less: Valuation allowance(1,054)(913)
Total net deferred tax asset1,412 1,202 
Net deferred tax liability$(1,184)$(1,125)
The Company considers undistributed earnings of certain foreign subsidiaries to be indefinitely reinvested outside of the U.S. No taxes have been recorded with respect to our indefinitely reinvested earnings in accordance with the relevant accounting guidance for income taxes. Should the earnings be remitted as dividends, the Company may be subject to additional foreign withholding and state income taxes. Under the Tax Cuts and Jobs Act ("TCJA"), future distributions from foreign subsidiaries will generally be subject to a federal dividends received deduction in the U.S. It is not practicable to estimate the amount of any additional taxes which may be payable on the undistributed earnings.
Income from operations in certain countries is subject to reduced tax rates as a result of satisfying specific commitments regarding employment and capital investment. The Company's income tax benefits related to the tax status of these operations are estimated to be $26 million, $28 million, and $19 million for the years ended December 31, 2025, 2024, and 2023, respectively. The per share effect of these benefits after noncontrolling interests was $0.03, $0.03, and $0.02 for each of the years ended December 31, 2025, 2024, and 2023, respectively. Included in the Company's income tax benefits is the benefit related to our operations in Vietnam, which is estimated to be $17 million, $14 million, and $16 million for the years ended December 31, 2025, 2024, and 2023, respectively. The per share effect of these benefits related to our operations in Vietnam after noncontrolling interest was $0.01 for each of the years ended December 31, 2025, 2024, and 2023.
The following table shows the income (loss) from continuing operations, before income taxes, net equity in earnings of affiliates and noncontrolling interests, for the periods indicated (in millions):
December 31, 202520242023
U.S.$(893)$(264)$(238)
Non-U.S.968 1,158 342 
Total$75 $894 $104 
Uncertain Tax Positions — Uncertain tax positions have been classified as noncurrent income tax liabilities unless they are expected to be paid within one year. The Company's policy for interest and penalties related to income tax exposures is to recognize interest and penalties as a component of the provision for income taxes in the Consolidated Statements of Operations. The following table shows the total amount of gross accrued income taxes related to interest and penalties included in the Consolidated Balance Sheets for the periods indicated (in millions):
December 31,20252024
Interest related $2 $2 
Penalties related1 — 
The following table shows the expense/(benefit) related to interest and penalties on unrecognized tax benefits for the periods indicated (in millions):
December 31, 202520242023
Total benefit for interest related to unrecognized tax benefits$— $— $— 
Total expense for penalties related to unrecognized tax benefits1 — — 
We are potentially subject to income tax audits in numerous jurisdictions in the U.S. and internationally until the applicable statute of limitations expires. Tax audits by their nature are often complex and can require several years to complete. The following is a summary of tax years potentially subject to examination in the significant tax and business jurisdictions in which we operate:
JurisdictionTax Years Subject to Examination
Argentina
2020 - 2025
Brazil
2019 - 2025
Chile
2022 - 2025
Colombia
2020 - 2025
Dominican Republic
2022 - 2025
El Salvador
2022 - 2025
Netherlands
2019 - 2025
Panama
2022 - 2025
United States (Federal)
2022 - 2025
As of December 31, 2025, 2024 and 2023, the total amount of unrecognized tax benefits was $109 million, $108 million, and $107 million, respectively. The total amount of unrecognized tax benefits that would benefit the effective tax rate as of December 31, 2025, 2024, and 2023 is $109 million, $108 million, and $107 million, respectively, of which $0 million, $1 million, and $1 million, respectively, would be in the form of tax attributes that would warrant a full valuation allowance. Further, the total amount of unrecognized tax benefit that would benefit the effective tax rate as of 2025 would be reduced by approximately $34 million of tax expense related to remeasurement from 35% to 21%.
The following is a reconciliation of the beginning and ending amounts of unrecognized tax benefits for the periods indicated (in millions):
202520242023
Balance at January 1$108 $107 $107 
Additions for current year tax positions8 — 1 
Additions for tax positions of prior years1 2 — 
Reductions for tax positions of prior years(3)— (1)
Settlements— — — 
Lapse of statute of limitations(5)(1)— 
Balance at December 31$109 $108 $107 
The Company and certain of its subsidiaries are currently under examination by the relevant taxing authorities for various tax years. The Company regularly assesses the potential outcome of these examinations in each of the taxing jurisdictions when determining the adequacy of the amount of unrecognized tax benefit recorded. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe we have appropriately accrued for our uncertain tax benefits. However, audit outcomes and the timing of audit settlements and future events that would impact our previously recorded unrecognized tax benefits and the range of anticipated increases or decreases in unrecognized tax benefits are subject to significant uncertainty. It is possible that the ultimate outcome of current or future examinations may exceed our provision for current unrecognized tax benefits in amounts that could be material, but cannot be estimated as of December 31, 2025. Our effective tax rate and net income in any given future period could therefore be materially impacted.

Historical Timeline

Fiscal YearFiled
2025Mar 2, 2026Showing above
2024Mar 11, 2025
2023Feb 26, 2024
2022Mar 1, 2023
2021Feb 28, 2022
2020Feb 25, 2021
2019Feb 28, 2020
2018Feb 27, 2019
2017Feb 27, 2018
2016Feb 27, 2017
2015Feb 24, 2016

About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

Other Available Disclosures

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