Baker Hughes CoBKR
Baker Hughes Co Income Taxes Disclosure
INCOME TAXES
The Company has adopted ASU 2023-09, effective prospectively for the fiscal year ended December 31, 2025. ASU 2023-09 provides for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information.
The provision for income taxes consists of the following:
| 2025 | |||||
| Current: | |||||
U.S. federal | $ | 6 | |||
U.S. state | 19 | ||||
| Foreign | 930 | ||||
| Total current | 955 | ||||
| Deferred: | |||||
U.S. federal | (87) | ||||
U.S. state | (24) | ||||
| Foreign | (591) | ||||
| Total deferred | (702) | ||||
| Provision for income taxes | $ | 253 | |||
| 2024 | 2023 | |||||||
| Current: | ||||||||
| U.S. | $ | 39 | $ | 33 | ||||
| Foreign | 889 | 711 | ||||||
| Total current | 928 | 744 | ||||||
| Deferred: | ||||||||
| U.S. | (556) | (27) | ||||||
| Foreign | (115) | (32) | ||||||
| Total deferred | (671) | (59) | ||||||
| Provision for income taxes | $ | 257 | $ | 685 | ||||
On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act ("OBBBA"). The OBBBA preserves the 21% U.S. Federal statutory tax rate and makes a favorable change to the business interest expense limitation. Further, the OBBBA also makes key elements of the Tax Cuts and Jobs Act permanent, including 100% bonus depreciation, domestic research cost expensing, and various expiring international provisions (with some modifications). Pursuant to ASC 740, changes in tax rates and tax law are required to be recognized in the period in which the legislation is enacted. The Company has completed its evaluation of the impact of this legislation and has determined that the OBBBA did not have a material impact on its 2025 financial statements.
On August 16, 2022, the U.S. enacted The Inflation Reduction Act, which included a number of additional credits and deductions for businesses and individuals. The Inflation Reduction Act also included the adoption of the Corporate Alternative Minimum Tax in 2023, which is based on financial statement book income of large corporations. To date, the impact of the Corporate Alternative Minimum Tax has been immaterial to the Company.
The geographic sources of income before income taxes consist of the following:
| 2025 | 2024 | 2023 | |||||||||
| U.S. | $ | 911 | $ | 1,099 | $ | 882 | |||||
| Foreign | 1,966 | 2,166 | 1,773 | ||||||||
Income before income taxes | $ | 2,877 | $ | 3,265 | $ | 2,655 | |||||
The reconciliation of the tax provision at the U.S. federal statutory rate to income tax expense is as follows:
| 2025 | % | |||||||
Income before income taxes | $ | 2,877 | ||||||
U.S. federal statutory tax rate | 604 | 21.0 | % | |||||
State and local income taxes (1) | (2) | (0.1) | % | |||||
| Federal | ||||||||
Effect of cross-border tax laws | ||||||||
FDII deduction | (73) | (2.5) | % | |||||
| Other | 37 | 1.3 | % | |||||
Tax credits | ||||||||
Foreign tax credits | (46) | (1.6) | % | |||||
Other credits | (26) | (0.9) | % | |||||
Changes in valuation allowances | 55 | 1.9 | % | |||||
Nontaxable or nondeductible items | ||||||||
| Other | (4) | (0.1) | % | |||||
Other adjustments | ||||||||
Impact of transactions (2) | (210) | (7.3) | % | |||||
| Other | (12) | (0.4) | % | |||||
Foreign tax effects | ||||||||
CHINA | 34 | 1.1 | % | |||||
ITALY | ||||||||
State and local income taxes | 39 | 1.4 | % | |||||
| Other | (5) | (0.2) | % | |||||
SAUDI ARABIA | ||||||||
Withholding taxes | 35 | 1.2 | % | |||||
Other | (1) | — | % | |||||
SWITZERLAND | ||||||||
Changes in valuation allowances | (33) | (1.1) | % | |||||
Taxable dividend | 37 | 1.3 | % | |||||
Other | 10 | 0.3 | % | |||||
| UNITED ARAB EMIRATES | ||||||||
Effect of rates different than statutory | (50) | (1.7) | % | |||||
| Other | (7) | (0.3) | % | |||||
UNITED KINGDOM | ||||||||
Changes in valuation allowances (3) | (432) | (15.0) | % | |||||
| Other | 7 | 0.3 | % | |||||
Other foreign jurisdictions | 213 | 7.3 | % | |||||
Changes in unrecognized tax benefits | 83 | 2.9 | % | |||||
Income tax expense | $ | 253 | 8.8 | % | ||||
(1)For the year ended December 31, 2025, the State and local income taxes are primarily related to the states of Louisiana, Oklahoma, Texas, and Alaska.
(2)For the year ended December 31, 2025, the Impact of transactions are associated with the pre-steps for the transactions discussed in "Note 22. Acquisitions, Dispositions, and Businesses Held for Sale."
(3)For the year ended December 31, 2025, this amount includes $308 million related to the release of a valuation allowance for certain deferred tax assets.
| 2024 | 2023 | |||||||
Income before income taxes | $ | 3,265 | $ | 2,655 | ||||
Taxes at the U.S. federal statutory income tax rate | 686 | 558 | ||||||
Effect of foreign operations | 269 | 112 | ||||||
Tax impact of partnership structure | (40) | (103) | ||||||
Change in valuation allowances (1) | (625) | 53 | ||||||
| Tax expense (benefit) due to unrecognized tax benefits | 38 | (5) | ||||||
Other — net | (71) | 70 | ||||||
Provision for income taxes | $ | 257 | $ | 685 | ||||
| Actual income tax rate | 7.9 | % | 25.8 | % | ||||
(1)For December 31, 2024 and 2023, this amount was reduced by $664 million and $81 million, respectively, related to the release of a valuation allowance for certain deferred tax assets.
The following table presents income taxes paid (net of refunds received) for the year ended December 31:
| 2025 | |||||
U.S. federal | $ | 11 | |||
U.S. state & local | 32 | ||||
Foreign | |||||
Italy- federal | 286 | ||||
Brazil | 101 | ||||
Germany- federal | 80 | ||||
Other foreign jurisdictions | 646 | ||||
Total foreign | 1,113 | ||||
Total income taxes paid, net | $ | 1,156 | |||
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as operating loss and tax credit carryforwards.
The tax effects of differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities as of December 31 consist of the following:
| 2025 | 2024 | |||||||
| Deferred tax assets: | ||||||||
| Operating & capital loss carryforwards | $ | 3,273 | $ | 3,442 | ||||
| Tax credit & other carryforwards | 734 | 772 | ||||||
Investment in partnerships & subsidiaries | 324 | 276 | ||||||
Property, plant and equipment | 248 | 250 | ||||||
| Employee benefits | 290 | 278 | ||||||
Goodwill and other intangible assets | 442 | 198 | ||||||
| Receivables | 127 | 150 | ||||||
| Inventory | 114 | 150 | ||||||
Other | 544 | 376 | ||||||
| Total deferred income tax asset | 6,096 | 5,892 | ||||||
Valuation allowances | (3,498) | (3,908) | ||||||
| Total deferred income tax asset after valuation allowance | 2,598 | 1,984 | ||||||
| Deferred tax liabilities: | ||||||||
Indefinite-lived intangible assets | (382) | (377) | ||||||
Fair value of derivative financial instruments | (150) | (166) | ||||||
Other | (193) | (240) | ||||||
Total deferred income tax liability | (725) | (783) | ||||||
| Net deferred tax asset | $ | 1,873 | $ | 1,201 | ||||
At December 31, 2025, the Company had approximately $456 million of non-U.S. tax credits and other carryforwards that may be carried forward indefinitely under applicable foreign law, $113 million of U.S. foreign tax credits, and $165 million of other U.S. Federal and state tax credits, the majority of which have expiration dates after tax year 2028 under U.S. Federal and state tax law. Additionally, the Company had $3,243 million of net operating loss carryforwards ("NOLs"), of which approximately $303 million have expiration dates within five years, $1,930 million have expiration dates between six years and 20 years, and the remainder can be carried forward indefinitely. Lastly, the Company had $30 million of capital loss carryforwards, the majority of which can be carried forward indefinitely.
The Company routinely assesses the recoverability of its deferred tax assets, giving consideration to a range of factors including, but not limited to, the pattern of historical taxable income generation, current performance, including active contractual arrangements, and the forecasted business outlook across operating jurisdictions. The ultimate realization of the deferred tax assets depends on a number of factors, including the ability to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. A valuation allowance is recorded (or maintained) when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company assessed both positive and negative evidence, with significant weight given to objective and verifiable factors, such as recent taxable income levels and credit utilization. Based on this evaluation, including consideration of our projected future taxable earnings, the Company concluded that it is more likely than not that its U.S. and U.K. deferred tax assets are recoverable. Accordingly, the Company released the associated valuation allowances, resulting in net tax benefits of $308 million and $664 million at December 31, 2025 and 2024, respectively.
At December 31, 2025, $3,498 million of valuation allowances are recorded against various deferred tax assets, primarily related to foreign operating and capital losses of $2,820 million and non-U.S. tax credit carryforwards of $438 million. The following table presents the change in the valuation allowances during the year:
| 2025 | 2024 | |||||||
Balance at the beginning of the year | $ | 3,908 | $ | 4,416 | ||||
Releases, net of current year activity | (376) | (625) | ||||||
Other | (34) | 117 | ||||||
Balance at end of year | $ | 3,498 | $ | 3,908 | ||||
Indefinite reinvestment is determined by management's intentions concerning the future operations of the Company. In cases where repatriation would otherwise incur significant withholding or income taxes, these earnings have been indefinitely reinvested in the Company's active non-U.S. business operations. As of December 31, 2025, the cumulative amount of undistributed foreign earnings is approximately $6,622 million. Computation of the potential deferred tax liability associated with these undistributed earnings and any other basis differences is not practicable.
At December 31, 2025, the Company had $525 million of tax liabilities for total gross unrecognized tax benefits related to uncertain tax positions. In addition to these uncertain tax positions, the Company had $82 million and $49 million related to interest and penalties, respectively, for total liabilities of $656 million for uncertain positions. If the Company were to prevail on all uncertain positions, the net effect would result in an income tax benefit of approximately $612 million. The remaining $44 million is comprised of $29 million for deferred tax assets that represent tax benefits that would be received in different taxing jurisdictions or in a different character and $15 million for increased valuation allowances.
The following table presents the changes in the Company's gross unrecognized tax benefits included in the consolidated statements of financial position.
| Asset / (Liability) | 2025 | 2024 | ||||||
| Balance at beginning of year | $ | (455) | $ | (467) | ||||
| Additions for tax positions of the current year | (12) | (17) | ||||||
| Additions for tax positions of prior years | (193) | (51) | ||||||
| Reductions for tax positions of prior years | 31 | 28 | ||||||
| Settlements with tax authorities | 61 | 24 | ||||||
| Lapse of statute of limitations | 43 | 28 | ||||||
| Balance at end of year | $ | (525) | $ | (455) | ||||
The Company conducts business in more than 120 countries and is subject to income taxes in most taxing jurisdictions in which it operates, each of which may have multiple open years subject to examination. All Internal Revenue Service examinations have been completed and closed through 2020 for the most significant U.S. returns. The Company believes that it has made adequate provision for all income tax uncertainties in all jurisdictions.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 5, 2026 | Showing above |
| 2024 | Feb 4, 2025 | |
| 2023 | Feb 5, 2024 | |
| 2022 | Feb 14, 2023 | |
| 2021 | Feb 11, 2022 | |
| 2020 | Feb 25, 2021 | |
| 2019 | Feb 13, 2020 | |
| 2018 | Feb 19, 2019 | |
| 2017 | Feb 23, 2018 | |
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.