BROWN FORMAN CORPBF-A
BROWN FORMAN CORP Income Taxes Disclosure
Income Taxes
We incur income taxes on the earnings of our U.S. and foreign operations. The following table, based on the locations of the taxable entities from which sales were derived (rather than the location of customers), presents the U.S. and foreign components of our income before income taxes:
| 2023 | 2024 | 2025 | |||||||||||||||
| United States | $ | 841 | $ | 917 | $ | 826 | |||||||||||
| Foreign | 176 | 381 | 255 | ||||||||||||||
| $ | 1,017 | $ | 1,298 | $ | 1,081 | ||||||||||||
The income shown above was determined according to GAAP. Because those standards sometimes differ from the tax rules used to calculate taxable income, there are differences between (a) the amount of taxable income and pretax financial income for a year and (b) the tax bases of assets or liabilities and their amounts as recorded in our financial statements. As a result, we recognize a current tax liability for the estimated income tax payable on the current tax return, deferred tax liabilities (tax on income that will be recognized on future tax returns), and deferred tax assets (tax from deductions that will be recognized on future tax returns) for the estimated effects of the differences mentioned above.
Total income tax expense for a year includes the tax associated with the current tax return (current tax expense) and the change in the net deferred tax asset or liability (deferred tax expense). Our total income tax expense for each of the last three years was as follows:
| 2023 | 2024 | 2025 | |||||||||||||||
| Current: | |||||||||||||||||
| U.S. federal | $ | 157 | $ | 150 | $ | 173 | |||||||||||
| Foreign | 46 | 81 | 73 | ||||||||||||||
| State and local | 34 | 25 | 5 | ||||||||||||||
| 237 | 256 | 251 | |||||||||||||||
| Deferred: | |||||||||||||||||
| U.S. federal | (4) | 16 | (45) | ||||||||||||||
| Foreign | 6 | (5) | 19 | ||||||||||||||
| State and local | (5) | 7 | (13) | ||||||||||||||
| (3) | 18 | (39) | |||||||||||||||
| $ | 234 | $ | 274 | $ | 212 | ||||||||||||
Our consolidated effective tax rate usually differs from current statutory rates due to the recognition of amounts for events or transactions with no tax consequences. The following table reconciles our effective tax rate to the federal statutory tax rate in the United States:
| Percent of Income Before Taxes | |||||||||||||||||
| 2023 | 2024 | 2025 | |||||||||||||||
| U.S. federal statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| State taxes, net of U.S. federal tax benefit | 2.5 | % | 1.3 | % | 1.7 | % | |||||||||||
| Income taxed at other than U.S. federal statutory rate | 3.0 | % | 0.5 | % | 1.5 | % | |||||||||||
| Prior intercompany sales taxed at higher than current U.S. federal statutory rate | 1.0 | % | — | % | — | % | |||||||||||
| Tax benefit from foreign-derived sales | (3.0 | %) | (1.7 | %) | (2.8) | % | |||||||||||
Business divestitures | — | % | (0.7 | %) | — | % | |||||||||||
| Adjustments related to prior years | (0.5 | %) | — | % | (1.7) | % | |||||||||||
| Excess tax benefits from stock-based awards | (0.3 | %) | (0.1 | %) | — | % | |||||||||||
| Tax rate changes | — | % | 0.4 | % | — | % | |||||||||||
| Valuation allowance | (1.3 | %) | 0.1 | % | 1.4 | % | |||||||||||
| Other, net | 0.6 | % | 0.4 | % | (1.5) | % | |||||||||||
| Effective rate | 23.0 | % | 21.2 | % | 19.6 | % | |||||||||||
Deferred tax assets and liabilities as of the end of each of the last two years were as follows:
| April 30, | 2024 | 2025 | |||||||||
| Deferred tax assets: | |||||||||||
| Postretirement and other benefits | $ | 65 | $ | 65 | |||||||
| Accrued liabilities and other | 29 | 44 | |||||||||
| Inventories | 26 | 42 | |||||||||
| Lease liabilities | 27 | 27 | |||||||||
| Derivative instruments | — | 2 | |||||||||
| Loss and credit carryforwards | 65 | 57 | |||||||||
Interest expense limitation carryforwards | 18 | 23 | |||||||||
| Total deferred tax assets | 230 | 260 | |||||||||
| Valuation allowance | (16) | (35) | |||||||||
| Total deferred tax assets, net of valuation allowance | 214 | 225 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Intangible assets | (295) | (294) | |||||||||
| Property, plant, and equipment | (93) | (96) | |||||||||
| Right-of-use assets | (27) | (27) | |||||||||
| Derivative instruments | (3) | — | |||||||||
Equity method investments | (37) | — | |||||||||
| Other | (5) | (2) | |||||||||
| Total deferred tax liabilities | (460) | (419) | |||||||||
| Net deferred tax liability | $ | (246) | $ | (194) | |||||||
Details of the loss, credit, and interest expense limitation carryforwards and related valuation allowances as of the end of each of the last two years are as follows:
| April 30, 2024 | April 30, 2025 | |||||||||||||||||||||||||||||||||||||
| Gross Amount | Deferred Tax Asset | Valuation Allowance | Gross Amount | Deferred Tax Asset | Valuation Allowance | |||||||||||||||||||||||||||||||||
Loss and credit carryforwards: | ||||||||||||||||||||||||||||||||||||||
| U.S. | $ | 110 | $ | 38 | $ | (7) | $ | 68 | $ | 31 | 1 | $ | (10) | |||||||||||||||||||||||||
| Foreign | 161 | 27 | (9) | 135 | 26 | 2 | (15) | |||||||||||||||||||||||||||||||
| 271 | 65 | (16) | 203 | 57 | (25) | |||||||||||||||||||||||||||||||||
Interest expense limitation carryforwards: | ||||||||||||||||||||||||||||||||||||||
Foreign | 74 | 18 | — | 91 | 23 | 3 | (10) | |||||||||||||||||||||||||||||||
Total carryforwards | $ | 345 | $ | 83 | $ | (16) | $ | 294 | $ | 80 | $ | (35) | ||||||||||||||||||||||||||
1As of April 30, 2025, the deferred tax asset amount includes credit carryforwards of $12 that do not expire and loss and credit carryforwards of $19 that expire in varying amounts from 2026 to 2050.
2As of April 30, 2025, the deferred tax asset includes loss carryforwards of $23 that do not expire and $3 that expire in varying amounts over the next 10 years.
3The interest expense limitation carryforwards do not expire.
As of April 30, 2025, we had approximately $1,890 of undistributed earnings from our foreign subsidiaries ($1,909 at April 30, 2024). These earnings have been previously subject to tax, primarily as a result of the 2017 Tax Cuts and Jobs Act. Historically, we have asserted that the undistributed earnings of our foreign subsidiaries are reinvested indefinitely outside the United States. We continue to maintain indefinite reinvestment assertions for most undistributed earnings of our foreign subsidiaries, and no deferred taxes have been provided on the earnings. For undistributed earnings not considered permanently reinvested, deferred tax liabilities have been provided for any applicable income taxes and withholding taxes payable in various countries, which are not significant. We have also asserted that other outside basis differences related to our foreign subsidiaries are reinvested indefinitely and that the determination of any unrecognized deferred tax liabilities is not practicable due to the complexities in the calculations. The other outside basis differences relate primarily to differences between U.S. GAAP and tax basis that arose through purchase accounting. These basis differences could reverse through sales of foreign subsidiaries or other transactions, none of which are considered probable as of April 30, 2025.
At April 30, 2025, we had $13 of gross unrecognized tax benefits, $11 of which would reduce our effective income tax rate if recognized. A reconciliation of the beginning and ending unrecognized tax benefits follows:
| 2023 | 2024 | 2025 | |||||||||||||||
| Unrecognized tax benefits at beginning of year | $ | 14 | $ | 21 | $ | 14 | |||||||||||
| Additions for tax positions provided in prior periods | 8 | 1 | — | ||||||||||||||
| Additions for tax positions provided in current period | 3 | 2 | 2 | ||||||||||||||
| Decreases for tax positions provided in prior years | — | (3) | — | ||||||||||||||
| Settlements of tax positions in the current period | — | (3) | — | ||||||||||||||
| Lapse of statutes of limitations | (4) | (4) | (3) | ||||||||||||||
| Unrecognized tax benefits at end of year | $ | 21 | $ | 14 | $ | 13 | |||||||||||
We file federal income tax returns in the United States and also file tax returns in various state, local and foreign jurisdictions. The major jurisdictions where we are subject to examination by tax authorities include the United States, Brazil, Korea, Mexico, Netherlands, and the United Kingdom. We have tax years open for examination from 2013 and forward. Various tax examinations are currently in progress in the United States, for both federal and states, and in certain foreign jurisdictions. In the United States, we are participating in the Internal Revenue Service’s Compliance Assurance Program for our fiscal 2025 tax year.
We believe there will be no material change in our gross unrecognized tax benefits in the next 12 months.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Jun 13, 2025 | Showing above |
| 2024 | Jun 14, 2024 | |
| 2023 | Jun 16, 2023 | |
| 2022 | Jun 17, 2022 | |
| 2021 | Jun 21, 2021 | |
| 2020 | Jun 19, 2020 | |
| 2019 | Jun 13, 2019 | |
| 2018 | Jun 13, 2018 | |
| 2017 | Jun 15, 2017 | |
| 2016 | Jun 16, 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.