Axalta Coating Systems Ltd.AXTA
Axalta Coating Systems Ltd. Income Taxes Disclosure
INCOME TAXES
On December 27, 2023, the Government of Bermuda enacted the Bermuda Corporate Income Tax Act (“Bermuda CITA”), which imposes a 15% corporate income tax effective for tax years beginning on or after January 1, 2025.
For the year ended December 31, 2025, the domestic components presented represent Bermuda, our country of incorporation. For the years ended December 31, 2024, and 2023, the domestic components presented represent the United States. Prior to 2025, we reflected the United States as the domestic component, which we believe was more meaningful to the reader due to the significance of our operations in the United States during the years when Bermuda did not impose a corporate income tax.
The Company’s operations in Switzerland are subject to reduced tax rates through December 31, 2026, as long as certain conditions are met. The tax benefit attributable to this tax holiday was $6 million, $4 million, and $4 million for the years ended December 31, 2025, 2024, and 2023, respectively. The tax effect of the holiday on diluted net income per common share was $0.03, $0.02, and $0.01 for the years ended December 31, 2025, 2024, and 2023.
Domestic and Foreign Components of Income Before Income Taxes
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
Domestic (1) | $ | 29 | $ | 203 | $ | 150 | ||||||||||||||
| Foreign | 517 | 293 | 205 | |||||||||||||||||
| Total | $ | 546 | $ | 496 | $ | 355 | ||||||||||||||
(1)For the year ended December 31, 2025, the domestic income before income taxes represents Bermuda operations. For the years ended December 31, 2024, and 2023, the domestic income before income taxes represent United States operations.
Provision (Benefit) for Income Taxes
| Year Ended December 31, 2025 | Year Ended December 31, 2024 | Year Ended December 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current | Deferred | Total | Current | Deferred | Total | Current | Deferred | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
Domestic (1) | $ | 1 | $ | 24 | $ | 25 | $ | 27 | $ | 7 | $ | 34 | $ | 33 | $ | (9) | $ | 24 | ||||||||||||||||||||||||||||||||||||||
Domestic State (1) | — | — | — | 8 | (1) | 7 | 9 | (2) | 7 | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | 121 | 21 | 142 | 87 | (23) | 64 | 52 | 3 | 55 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 122 | $ | 45 | $ | 167 | $ | 122 | $ | (17) | $ | 105 | $ | 94 | $ | (8) | $ | 86 | ||||||||||||||||||||||||||||||||||||||
(1)For the year ended December 31, 2025, the domestic federal and state provision (benefit) for income taxes represent Bermuda operations. Bermuda does not impose a state income tax. For the years ended December 31, 2024, and 2023, the domestic federal and state provision (benefit) for income taxes represent United States operations.
Income Tax Paid by Jurisdiction
Year Ended December 31, | ||||||||
| 2025 | ||||||||
| Brazil | 8 | |||||||
| China | 22 | |||||||
| India | 6 | |||||||
| Mexico | 14 | |||||||
United States | 29 | |||||||
Other foreign jurisdictions (1) | 28 | |||||||
Total Income Tax Paid | $ | 107 | ||||||
(1)All other foreign jurisdictions do not individually exceed $5 million.
Reconciliation to U.S. Statutory Rate
For the year ended December 31, 2025, the effective tax rate reconciliation is presented reflecting the differences between the Bermuda income tax rate and the effective tax rate for the Company. For the years ended December 31, 2024, and 2023, the effective tax rate reconciliation is presented reflecting the differences between the United States federal income tax rate and the effective tax rate for the Company.
| Year Ended December 31, | ||||||||||||||
| 2025 | ||||||||||||||
| Statutory Bermuda federal income tax rate | $ | 82 | 15.0 | % | ||||||||||
Foreign Tax Effects | ||||||||||||||
| Brazil | ||||||||||||||
Statutory tax rate differences between Brazil and Bermuda | 4 | 0.8 | ||||||||||||
| Foreign taxes | 4 | 0.8 | ||||||||||||
China | ||||||||||||||
Statutory tax rate differences between China and Bermuda | 9 | 1.6 | ||||||||||||
Other | 3 | 0.6 | ||||||||||||
Germany | ||||||||||||||
Trade tax | 5 | 0.9 | ||||||||||||
| Enactment of new tax laws | (5) | (0.9) | ||||||||||||
Other | (1) | (0.2) | ||||||||||||
Luxembourg | ||||||||||||||
Nondeductible foreign exchange gains and losses | 10 | 1.8 | ||||||||||||
Other | (3) | (0.5) | ||||||||||||
Netherlands | ||||||||||||||
Statutory tax rate differences between Netherlands and Bermuda | (4) | (0.7) | ||||||||||||
Nondeductible foreign exchange gains and losses | 7 | 1.3 | ||||||||||||
Other | (5) | (0.9) | ||||||||||||
Switzerland | ||||||||||||||
Statutory tax rate differences between Switzerland and Bermuda | (20) | (3.7) | ||||||||||||
Cantonal tax | 7 | 1.3 | ||||||||||||
| Foreign taxes | 4 | 0.8 | ||||||||||||
| Deductible impairment loss | (5) | (0.9) | ||||||||||||
Other | (2) | (0.4) | ||||||||||||
United Kingdom | ||||||||||||||
Statutory tax rate differences between the United Kingdom and Bermuda | (6) | (1.1) | ||||||||||||
Changes in valuation allowance | 3 | 0.5 | ||||||||||||
United States | ||||||||||||||
Statutory tax rate differences between United States and Bermuda | 7 | 1.3 | ||||||||||||
State and local income taxes, net federal tax effect | 4 | 0.7 | ||||||||||||
Tax credits | (6) | (1.1) | ||||||||||||
Nontaxable and nondeductible items | 9 | 1.6 | ||||||||||||
Mexico | 7 | 1.3 | ||||||||||||
Other | 16 | 2.8 | ||||||||||||
Changes in valuation allowance | 19 | 3.5 | ||||||||||||
Nontaxable and nondeductible items | 1 | 0.2 | ||||||||||||
Changes in unrecognized tax benefits | 23 | 4.2 | ||||||||||||
Total income tax provision / effective tax rate | $ | 167 | 30.6 | % | ||||||||||
Year Ended December 31, | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| Statutory U.S. federal income tax rate | $ | 104 | 21.0 | % | $ | 75 | 21.0 | % | ||||||||||||||||||
Foreign income taxed at rates other than U.S. statutory rate | (25) | (5.1) | (29) | (8.2) | ||||||||||||||||||||||
Changes in valuation allowances | 14 | 2.7 | 38 | 10.7 | ||||||||||||||||||||||
| Foreign exchange gains and losses | (14) | (2.7) | 1 | 0.2 | ||||||||||||||||||||||
| Unrecognized tax benefits | 13 | 2.6 | (6) | (1.7) | ||||||||||||||||||||||
| Foreign taxes | 8 | 1.6 | 9 | 2.5 | ||||||||||||||||||||||
| Non-deductible expenses | 7 | 1.5 | 7 | 1.9 | ||||||||||||||||||||||
| Tax credits | (7) | (1.4) | (9) | (2.5) | ||||||||||||||||||||||
| U.S. state and local taxes, net | 6 | 1.2 | 5 | 1.5 | ||||||||||||||||||||||
| Bermuda CITA | (27) | (5.5) | — | — | ||||||||||||||||||||||
Other, net (1) | 26 | 5.2 | (5) | (1.1) | ||||||||||||||||||||||
Total income tax provision / effective tax rate | $ | 105 | 21.1 | % | $ | 86 | 24.3 | % | ||||||||||||||||||
(1)In 2024, the Company recorded a tax expense of $26 million in the Netherlands related to the write off of an expired net operating loss carryforward, which is fully offset by a tax benefit of $26 million for the decrease to the valuation allowance.
Deferred Tax Balances
| Year Ended December 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Deferred tax asset | ||||||||||||||
Tax loss, credit and interest carryforwards | $ | 437 | $ | 361 | ||||||||||
Compensation and employee benefits | 62 | 68 | ||||||||||||
Accruals and other reserves | 38 | 34 | ||||||||||||
Research and development capitalization | 35 | 53 | ||||||||||||
Equity investment and other securities | 5 | — | ||||||||||||
| Leases | 41 | 38 | ||||||||||||
Other | 8 | 1 | ||||||||||||
| Total deferred tax assets | 626 | 555 | ||||||||||||
| Less: valuation allowance | (337) | (250) | ||||||||||||
| Total deferred tax assets, net of valuation allowance | 289 | 305 | ||||||||||||
| Deferred tax liabilities | ||||||||||||||
Goodwill and intangibles | (164) | (126) | ||||||||||||
Property, plant and equipment | (146) | (143) | ||||||||||||
Unremitted earnings | (16) | (14) | ||||||||||||
| Accounts receivable and other assets | (15) | (7) | ||||||||||||
| Equity investment and other securities | — | (2) | ||||||||||||
| Total deferred tax liabilities | (341) | (292) | ||||||||||||
| Net deferred tax (liability) asset | $ | (52) | $ | 13 | ||||||||||
| Non-current assets | $ | 119 | $ | 164 | ||||||||||
| Non-current liability | (171) | (151) | ||||||||||||
| Net deferred tax (liability) asset | $ | (52) | $ | 13 | ||||||||||
At December 31, 2025 and 2024, deferred income taxes of approximately $16 million and $14 million, respectively, have been provided on unremitted earnings of all subsidiaries and related companies to the extent that such earnings are not deemed to be permanently reinvested and cannot be repatriated in a tax-free manner. At December 31, 2025, and 2024, we have not recorded a deferred tax liability related to withholding taxes of approximately $147 million and $95 million, respectively, on unremitted earnings of subsidiaries that are deemed permanently reinvested.
| Tax loss, tax credit and interest carryforwards | Year Ended December 31, | |||||||||||||
| 2025 | 2024 | |||||||||||||
Tax loss carryforwards (tax effected) (1) | ||||||||||||||
Expire within 10 years | $ | 49 | $ | 20 | ||||||||||
Expire after 10 years or indefinite carryforward | 201 | 175 | ||||||||||||
| Tax credit carryforwards | ||||||||||||||
Expire within 10 years | 1 | 1 | ||||||||||||
Expire after 10 years or indefinite carryforward | 7 | 1 | ||||||||||||
| Interest carryforwards | ||||||||||||||
Expire within 10 years | 1 | 1 | ||||||||||||
Expire after 10 years or indefinite carryforward | 178 | 163 | ||||||||||||
| Total tax loss, tax credit and interest carryforwards | $ | 437 | $ | 361 | ||||||||||
(1)Net of unrecognized tax benefits
Utilization of our tax loss, tax credit and interest carryforwards may be subject to annual limitations due to the ownership change limitations provided by the Internal Revenue Code and similar state and foreign provisions. Such annual limitations could result in the expiration of the tax loss, tax credit and interest carryforwards before their utilization.
Valuation allowance
| Year Ended December 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
Domestic (1) | $ | 27 | $ | 4 | ||||||||||
| Foreign | 310 | 246 | ||||||||||||
| Total valuation allowance | $ | 337 | $ | 250 | ||||||||||
(1)For the year ended December 31, 2025, the domestic valuation allowance represents Bermuda operations. For the year ended December 31,2024, the domestic valuation allowance represents the U.S. operations.
Valuation allowances relate primarily to the tax loss, tax credit and interest carryforwards, as well as equity investment in foreign jurisdictions, where the Company does not believe the associated net deferred tax assets will be realized, due to expiration, limitation or insufficient future taxable income. The foreign valuation allowance primarily relates to tax loss carryforwards and interest carryforwards from operations in Luxembourg, Netherlands, and the United Kingdom, of $295 million and $240 million at December 31, 2025 and 2024, respectively.
Total Gross Unrecognized Tax Benefits | Year Ended December 31, | |||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Total gross unrecognized tax benefits at January 1 | $ | 107 | $ | 96 | $ | 98 | ||||||||||||||
| Increases related to acquisitions | — | — | — | |||||||||||||||||
Increases related to positions taken on items from prior years | 28 | 5 | 2 | |||||||||||||||||
Decreases related to positions taken on items from prior years | (2) | (3) | (5) | |||||||||||||||||
| Increases related to positions taken in the current year | 9 | 10 | 12 | |||||||||||||||||
| Settlement of uncertain tax positions with tax authorities | (2) | — | (1) | |||||||||||||||||
| Decrease due to expiration of statues of limitations | (41) | (1) | (10) | |||||||||||||||||
| Total gross unrecognized tax benefits at December 31 | 99 | 107 | 96 | |||||||||||||||||
Total accrual for interest and penalties associated with unrecognized tax benefits (1) | 13 | 6 | 5 | |||||||||||||||||
| Total gross unrecognized tax benefits at December 31, including interest and penalties | $ | 112 | $ | 113 | $ | 101 | ||||||||||||||
| Total unrecognized tax benefits that, if recognized, would impact the effective tax rate | $ | 73 | $ | 50 | $ | 42 | ||||||||||||||
| Interest and penalties included as components of the Provision for income taxes | $ | 6 | $ | 1 | $ | (1) | ||||||||||||||
(1)Accrued interest and penalties are included within Other accrued liabilities and Other liabilities in the consolidated balance sheets.
The Company is subject to income tax in approximately 49 jurisdictions outside of Bermuda. The Company’s significant operations outside of Bermuda are located in Brazil, China, Germany, Mexico, Switzerland, the United Kingdom, and the United States. The statute of limitations varies by jurisdiction with 2014 being the oldest tax year still open in significant jurisdictions. Certain German subsidiaries are under tax examination for calendar years 2014 to 2020. The review by the German Tax Authorities (“GTA”) encompasses various tax aspects, including but not limited to intercompany transactions and the establishment of our European headquarters in Basel, Switzerland in 2016. The GTA have issued proposed adjustments and have communicated a preliminary position related to the establishment of our European headquarters. We are fully engaged in ongoing discussions with the GTA and are evaluating potential resolution options for certain tax years open under audit.
The Company is also under audit in other jurisdictions outside of Germany, including an inquiry with His Majesty’s Revenue and Customs (“HMRC”) in the United Kingdom for tax years 2021-2023. The HMRC’s inquiries are principally related to, but not limited to, certain intercompany financing activities. We continue to respond to information requests.
The result of all open examinations may lead to adjustments to our taxes or certain tax attributes including net operating losses or interest limitation carryforwards with respect to years under examination as well as subsequent periods. We believe that our estimated provisions for any adjustments that may result from the examinations are appropriately recorded in our condensed consolidated financial statements at December 31, 2025.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 13, 2026 | Showing above |
| 2024 | Feb 13, 2025 | |
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.