APPLIED MATERIALS INC /DEAMAT
APPLIED MATERIALS INC /DE Income Taxes Disclosure
Income Taxes
The components of income before income taxes for each fiscal year were as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| (In millions) | |||||||||||||||||
| U.S. | $ | 56 | $ | 833 | $ | 1,234 | |||||||||||
| Foreign | 9,215 | 7,319 | 6,482 | ||||||||||||||
| Total | $ | 9,271 | $ | 8,152 | $ | 7,716 | |||||||||||
The components of the provision for income taxes for each fiscal year were as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| (In millions) | |||||||||||||||||
| Current: | |||||||||||||||||
| U.S. | $ | 675 | $ | 1,254 | $ | 708 | |||||||||||
| Foreign | 411 | 366 | 456 | ||||||||||||||
| State | 34 | 33 | 54 | ||||||||||||||
| 1,120 | 1,653 | 1,218 | |||||||||||||||
| Deferred: | |||||||||||||||||
| U.S. | 382 | (697) | (255) | ||||||||||||||
| Foreign | 788 | 30 | (61) | ||||||||||||||
| State | (17) | (11) | (42) | ||||||||||||||
| 1,153 | (678) | (358) | |||||||||||||||
| Total | $ | 2,273 | $ | 975 | $ | 860 | |||||||||||
A reconciliation between the statutory U.S. federal income tax rate and our actual effective income tax rate for each fiscal year is presented below:
| 2025 | 2024 | 2023 | |||||||||||||||
| Tax provision at U.S. statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| Effect of foreign operations taxed at various rates | (7.3) | (7.6) | (8.2) | ||||||||||||||
Changes in prior years’ unrecognized tax benefits | — | — | (0.2) | ||||||||||||||
Resolutions of prior years’ income tax filings | 0.2 | (0.1) | (0.1) | ||||||||||||||
| Research and other tax credits | (1.3) | (1.4) | (1.6) | ||||||||||||||
| Remeasurement of deferred tax assets in Singapore | 7.1 | — | — | ||||||||||||||
| Valuation allowance on corporate alternative minimum tax credits | 4.4 | — | — | ||||||||||||||
| Other | 0.4 | 0.1 | 0.2 | ||||||||||||||
| Total | 24.5 | % | 12.0 | % | 11.1 | % | |||||||||||
Our provision for income taxes and effective tax rate are affected by the geographical composition of pre-tax income which includes jurisdictions with differing tax rates, conditional reduced tax rates and other income tax incentives. It is also affected by events that vary from period to period, such as changes in income tax laws and the resolution of prior years’ income tax filings.
Our effective tax rate for fiscal 2025 was higher than the prior fiscal year primarily due to a $659 million remeasurement of deferred tax assets resulting from new tax incentive agreements in Singapore and the recognition of a $407 million valuation allowance against deferred tax assets related to corporate alternative minimum tax (CAMT) credits. These credits are not expected to be realized as a result of changes in the timing of future tax deductions, following the enactment of the One Big Beautiful Bill Act. No prudent and feasible tax-planning strategies are currently available. The amount of the valuation allowance may be adjusted in future quarters if estimates of future taxable income change.
Our effective tax rate for fiscal 2024 was higher than fiscal 2023 primarily due to lower tax credits in fiscal 2024, partially offset by higher proportion of pre-tax income in lower tax jurisdictions in fiscal 2024.
In the reconciliation between the statutory U.S. federal income tax rate and the effective income tax rate, the effect of foreign operations taxed at various rates represents the difference between an income tax provision at the U.S. federal statutory income tax rate and the recorded income tax provision, with the difference expressed as a percentage of worldwide income before income taxes. This effect is substantially related to the tax effect of pre-tax income in jurisdictions with lower statutory tax rates. The foreign operations with the most significant effective tax rate impact are in Singapore. The statutory tax rate for fiscal 2025 for Singapore is 17%. We have been granted conditional reduced tax rates that expire beginning in fiscal 2030, excluding potential renewal and subject to certain conditions with which we expect to comply. The tax benefits arising from these tax rates were $490 million or $0.61 per diluted share, $393 million or $0.47 per diluted share and $369 million or $0.44 per diluted share for fiscal 2025, 2024 and 2023, respectively.
Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the book and tax bases of assets and liabilities. Deferred tax assets are also recognized for net operating loss and tax credit carryovers. Deferred tax assets are offset by a valuation allowance to the extent it is more likely than not that they are not expected to be realized. The components of deferred income tax assets and liabilities were as follows:
| October 26, 2025 | October 27, 2024 | ||||||||||
| (In millions) | |||||||||||
| Deferred tax assets: | |||||||||||
| Corporate Alternative Minimum Tax | $ | 407 | $ | 410 | |||||||
| Capitalized R&D expenses | 295 | 217 | |||||||||
| Allowance for doubtful accounts | 3 | 4 | |||||||||
| Inventory reserves and basis difference | 145 | 127 | |||||||||
| Installation and warranty reserves | 42 | 70 | |||||||||
| Intangible assets | 225 | 977 | |||||||||
| Accrued liabilities | 29 | 24 | |||||||||
| Deferred revenue | 61 | 72 | |||||||||
| Tax credits | 677 | 592 | |||||||||
| Deferred compensation | 265 | 261 | |||||||||
| Share-based compensation | 34 | 44 | |||||||||
| Property, plant and equipment | 192 | 101 | |||||||||
| Lease liability | 104 | 72 | |||||||||
| Other | 50 | 79 | |||||||||
| Gross deferred tax assets | 2,529 | 3,050 | |||||||||
| Valuation allowance | (1,049) | (569) | |||||||||
| Total deferred tax assets | 1,480 | 2,481 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Right of use assets | (105) | (76) | |||||||||
| Undistributed foreign earnings | (26) | (23) | |||||||||
| Investments | (133) | — | |||||||||
| Total deferred tax liabilities | (264) | (99) | |||||||||
| Net deferred tax assets | $ | 1,216 | $ | 2,382 | |||||||
A valuation allowance is recorded to reflect the estimated amount of net deferred tax assets that may not be realized. Changes in the valuation allowance in each fiscal year were as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| (In millions) | |||||||||||||||||
| Beginning balance | $ | 569 | $ | 530 | $ | 460 | |||||||||||
| Increases | 480 | 39 | 70 | ||||||||||||||
| Ending balance | $ | 1,049 | $ | 569 | $ | 530 | |||||||||||
At October 26, 2025, we have corporate alternative minimum tax credit carryforwards of $407 million that are carried over until exhausted. We also have state research and development tax credit carryforwards of $677 million, including $624 million of credits that are carried over until exhausted and $42 million that are carried over for 15 years and begin to expire in fiscal 2034. It is more likely than not that all tax credit carryforwards, net of valuation allowance, will be utilized.
We maintain liabilities for uncertain tax positions. These liabilities involve considerable judgment and estimation and are continuously monitored based on the best information available. Gross unrecognized tax benefits are classified as non-current income taxes payable or as a reduction in deferred tax assets. A reconciliation of the beginning and ending balances of gross unrecognized tax benefits in each fiscal year is as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| (In millions) | |||||||||||||||||
| Beginning balance of gross unrecognized tax benefits | $ | 544 | $ | 510 | $ | 498 | |||||||||||
| Lapses of statutes of limitation | (82) | — | — | ||||||||||||||
| Increases in tax positions for current year | 26 | 25 | 28 | ||||||||||||||
| Increases in tax positions for prior years | — | 13 | — | ||||||||||||||
| Decreases in tax positions for prior years | (1) | (4) | (16) | ||||||||||||||
| Ending balance of gross unrecognized tax benefits | $ | 487 | $ | 544 | $ | 510 | |||||||||||
Tax benefit for interest and penalties on unrecognized tax benefits for fiscal 2025 was $63 million and tax expense for interest and penalties on unrecognized tax benefits for fiscal 2024 and 2023 was $45 million and $34 million, respectively. The income tax liability for interest and penalties for fiscal 2025, 2024 and 2023 was $118 million, $181 million and $136 million, respectively, and was classified as non-current income taxes payable.
Included in the balance of unrecognized tax benefits for fiscal 2025, 2024 and 2023 are $347 million, $397 million, and $386 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate.
Our tax returns remain subject to examination by taxing authorities. These include U.S. returns for fiscal 2015 and later years, and foreign tax returns for fiscal 2011 and later years.
The timing of the resolution of income tax examinations, as well as the amounts and timing of various tax payments that may be part of the settlement process, is highly uncertain. This could cause fluctuations in our financial condition and results of operations. We continue to have ongoing negotiations with various taxing authorities throughout the year, and evaluate all domestic and foreign tax audit issues in the aggregate, along with the expiration of applicable statutes of limitations.
We believe it is reasonably possible that the amount of gross unrecognized tax benefits related primarily to foreign operations could be reduced by approximately $200 million in the next 12 months as a result of the resolution of tax matters or the lapse of statute of limitations.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Dec 12, 2025 | Showing above |
| 2024 | Dec 13, 2024 | |
| 2023 | Dec 15, 2023 | |
| 2022 | Dec 16, 2022 | |
| 2021 | Dec 17, 2021 | |
| 2020 | Dec 11, 2020 | |
| 2019 | Dec 13, 2019 | |
| 2018 | Dec 13, 2018 | |
| 2017 | Dec 15, 2017 | |
| 2016 | Dec 15, 2016 | |
| 2015 | Dec 9, 2015 | |
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.