Dauch CorpDCH
Dauch Corp Income Taxes Disclosure
13. INCOME TAXES
The components of income (loss) before income taxes are as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| (in millions) | |||||||||||||||||
| U.S. loss | $ | (61.8) | $ | (54.7) | $ | (212.5) | |||||||||||
| Non-U.S. income | 63.3 | 117.5 | 188.0 | ||||||||||||||
| Total income (loss) before income taxes | $ | 1.5 | $ | 62.8 | $ | (24.5) | |||||||||||
The following is a summary of the components of our provision for income taxes:
| 2025 | 2024 | 2023 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Current | |||||||||||||||||
| Federal | $ | 9.2 | $ | 10.3 | $ | 8.5 | |||||||||||
| State and local | 0.9 | 0.9 | 0.9 | ||||||||||||||
| Non-U.S. | 43.0 | 56.7 | 38.0 | ||||||||||||||
| Total current | $ | 53.1 | $ | 67.9 | $ | 47.4 | |||||||||||
| Deferred | |||||||||||||||||
| Federal | $ | (27.0) | $ | (31.2) | $ | (38.5) | |||||||||||
| State and local | (0.4) | — | (0.5) | ||||||||||||||
| Non-U.S. | (4.5) | (8.9) | 0.7 | ||||||||||||||
| Total deferred | $ | (31.9) | $ | (40.1) | $ | (38.3) | |||||||||||
| Total income tax expense | $ | 21.2 | $ | 27.8 | $ | 9.1 | |||||||||||
The following is a reconciliation of income taxes calculated at the U.S. federal statutory income tax rate of 21% in 2025 to our provision for income taxes, including the additional disclosure requirements as set forth in ASU 2023-09, which we adopted in 2025 on a prospective basis:
| 2025 | ||||||||
| (in millions) | ||||||||
| Federal statutory income tax expense and rate | $ | 0.3 | 21.0 | % | ||||
| State and local income taxes, net of federal income tax effect | 0.4 | 26.7 | % | |||||
| Non-U.S. tax effects | ||||||||
| Brazil | ||||||||
| Statutory tax rate difference | 2.7 | 180.0 | % | |||||
| Changes in valuation allowances | (5.9) | (393.3) | % | |||||
| Other | 1.6 | 106.7 | % | |||||
| China | ||||||||
| Changes in valuation allowances | 3.5 | 233.3 | % | |||||
| Other | (3.3) | (220.0) | % | |||||
| France | 3.3 | 220.0 | % | |||||
| Germany | ||||||||
| Changes in valuation allowances | 16.2 | 1,080.0 | % | |||||
| Statutory tax rate difference | (3.5) | (233.3) | % | |||||
| Other | (1.7) | (113.3) | % | |||||
| Mexico | ||||||||
| Statutory tax rate difference | 4.0 | 266.7 | % | |||||
| Unrealized gain/loss | (2.4) | (160.0) | % | |||||
| Other | 1.6 | 106.7 | % | |||||
| United Kingdom | ||||||||
| Changes in valuation allowance | 3.4 | 226.7 | % | |||||
| Other | (1.3) | (86.7) | % | |||||
| Other non-U.S. jurisdictions | 3.3 | 220.0 | % | |||||
| Effect of changes in tax laws or rates enacted in the current period | — | — | % | |||||
| Effect of cross-border tax laws | ||||||||
| Global intangible low-taxed income | 2.2 | 146.7 | % | |||||
| Partnership income | 8.7 | 580.0 | % | |||||
| Withholding taxes | 7.7 | 513.3 | % | |||||
| Other | 1.4 | 93.3 | % | |||||
| Tax credits | ||||||||
| Non-U.S. tax credits | (9.2) | (613.3) | % | |||||
| R&D credit | (12.2) | (813.3) | % | |||||
| Other tax credits | (3.0) | (200.0) | % | |||||
| Changes in valuation allowances | (17.8) | (1,186.7) | % | |||||
| Nontaxable or nondeductible items | ||||||||
| Permanent adjustments | 14.8 | 986.7 | % | |||||
| Changes in unrecognized tax benefits | 2.1 | 140.0 | % | |||||
| Other | 4.3 | 285.4 | % | |||||
| Effective income tax expense and rate | $ | 21.2 | 1,413.3 | % | ||||
For the year ended December 31, 2025, our effective income tax rate varies from the U.S. federal statutory rate primarily due to permanent adjustments associated with nondeductible transaction costs incurred in conjunction with the Business Combination, the mix of earnings on a jurisdictional basis and the impact of tax expense from valuation allowances in certain non-U.S. jurisdictions, as well as the impact of certain non-U.S. tax rates and non-U.S. withholding taxes. These increases in our effective tax rate were partially offset by the impact of the enactment of the One Big Beautiful Bill (the OBBB), which resulted in a full year income tax benefit of $18.4 million, and the favorable impact of tax credits.
Our income tax expense and effective income tax rate for the year ended December 31, 2025 vary from our income tax expense and effective income tax rate for the year ended December 31, 2024 primarily as a result of the benefit recognized as a result of enactment of the OBBB, as well as the mix of earnings on a jurisdictional basis.
The following is a reconciliation of income taxes calculated at the U.S. federal statutory income tax rate of 21% in 2024 and 2023 to our provision for income taxes based on the applicable guidance prior to the adoption of ASU 2023-09:
| 2024 | 2023 | ||||||||||
| (in millions) | |||||||||||
| Federal statutory | $ | 13.2 | $ | (5.1) | |||||||
| Non-U.S. income taxes | 2.4 | (14.9) | |||||||||
| Change in enacted tax rate | — | 0.2 | |||||||||
| State and local | (0.8) | (7.5) | |||||||||
| Tax credits | (29.3) | (14.2) | |||||||||
| Valuation allowance | 20.9 | 45.0 | |||||||||
| Withholding taxes | 5.6 | 7.3 | |||||||||
| U.S. tax on unremitted non-U.S. earnings | 0.9 | 0.5 | |||||||||
| Global intangible low-taxed income (GILTI) | 6.0 | 15.3 | |||||||||
| Foreign derived intangible income deduction | — | (0.1) | |||||||||
| Uncertain tax positions | 0.8 | 1.3 | |||||||||
| Return to provision adjustments | (8.0) | 2.0 | |||||||||
| Permanent adjustments | 10.1 | 3.3 | |||||||||
| Income from branch subsidiaries | 9.1 | — | |||||||||
| Reorganization and restructuring actions | (2.3) | (26.1) | |||||||||
| Other | (0.8) | 2.1 | |||||||||
| Effective income tax expense | $ | 27.8 | $ | 9.1 | |||||||
In 2024, our effective income tax rate varied from the U.S. federal statutory rate primarily due to tax expense related to global intangible low-taxed income, as well as the impact of certain non-U.S. tax rates and non-U.S. withholding tax, partially offset by the impact of tax credits. Additionally, during the year ended December 31, 2024, we recognized an income tax benefit of $7.9 million as a result of elections made as part of our 2023 income tax return.
In 2023, our effective income tax rate varied from the U.S. federal statutory rate primarily as a result of approximately $36.1 million attributable to both increased valuation allowances on disallowed interest expense in the U.S., as well as net income tax expense resulting from various changes in determinations related to the potential realization of deferred tax assets and the resulting establishment of, and release of, valuation allowances in certain non-U.S. jurisdictions. These income tax expenses were partially offset by a net income tax benefit of approximately $26.1 million resulting from various internal reorganization and restructuring actions during the year, which in turn was partially offset by the associated impact on our foreign derived intangible income and disallowed interest deductions in the U.S., as well as the impact of favorable non-U.S. tax rates and tax credits.
As of December 31, 2025, we have refundable income taxes of approximately $24.3 million, $7.8 million of which is classified as Prepaid expenses and other and $16.5 million classified as Other assets and deferred charges on our Consolidated Balance Sheet, as compared to approximately $10.5 million classified as Prepaid expenses and other and $14.3 million classified as Other assets and deferred charges as of December 31, 2024. We also have income taxes payable of approximately $19.3 million and $19.0 million classified as Accrued expenses and other on our Consolidated Balance Sheets as of December 31, 2025 and 2024, respectively.
The approximate tax effect of each significant type of temporary difference and carryforward that results in a deferred tax asset or liability is as follows:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in millions) | |||||||||||
| Deferred tax assets | |||||||||||
| Employee benefits | $ | 125.5 | $ | 111.5 | |||||||
| Inventory | 39.5 | 36.9 | |||||||||
| Net operating loss (NOL) carryforwards | 230.3 | 189.8 | |||||||||
| Tax credit carryforwards | 31.9 | 31.2 | |||||||||
| Capital allowance carryforwards | 13.0 | 12.3 | |||||||||
| Capitalized expenditures | 107.9 | 103.6 | |||||||||
| Interest carryforward | 54.4 | 81.5 | |||||||||
| Operating lease liabilities | 29.3 | 27.3 | |||||||||
| Other | 87.5 | 69.6 | |||||||||
| Valuation allowances | (313.6) | (288.8) | |||||||||
| Deferred tax assets | $ | 405.7 | $ | 374.9 | |||||||
| Deferred tax liabilities | |||||||||||
| Other intangible assets | $ | (97.3) | $ | (115.2) | |||||||
| Fixed assets | (21.1) | (29.4) | |||||||||
| Operating lease right-of-use assets | (28.7) | (26.9) | |||||||||
| Other | (31.8) | (15.7) | |||||||||
| Deferred tax liabilities | $ | (178.9) | $ | (187.2) | |||||||
| Deferred tax assets, net | $ | 226.8 | $ | 187.7 | |||||||
Deferred tax assets and liabilities recognized in our Consolidated Balance Sheets are as follows:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in millions) | |||||||||||
| U.S. federal and state deferred tax asset, net | $ | 150.8 | $ | 126.7 | |||||||
| Other non-U.S. deferred tax asset, net | 76.0 | 61.0 | |||||||||
| Deferred tax asset, net | $ | 226.8 | $ | 187.7 | |||||||
DEFERRED INCOME TAX ASSETS AND LIABILITIES AND VALUATION ALLOWANCES The deferred income tax assets and liabilities summarized above reflect the impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the basis of such assets and liabilities for income tax purposes. ASC 740 - Income Taxes states that companies must measure deferred tax amounts at the rate at which they are expected to be realized.
As of December 31, 2025 and December 31, 2024, we had deferred tax assets from domestic and non-U.S. net operating loss and tax credit carryforwards of $275.2 million and $233.3 million, respectively. Approximately $163.9 million of the deferred tax assets at December 31, 2025 relate to NOL and tax credits that can be carried forward indefinitely with the remainder expiring between 2026 and 2045.
Accounting guidance for income taxes requires a deferred tax liability to be established for the U.S. tax impact of undistributed earnings of non-U.S. subsidiaries unless it can be shown that these earnings will be permanently reinvested outside the U.S. The undistributed earnings of our non-U.S. subsidiaries will generally not be taxed upon repatriation to the U.S. as these earnings will be treated as previously taxed income from either the one-time transition tax or GILTI, or they will be offset with a full dividends received deduction. We have provided deferred income taxes for the estimated non-U.S. income tax and applicable withholding taxes on earnings of subsidiaries expected to be distributed.
In accordance with the accounting guidance for income taxes, we review the likelihood that we will realize the benefit of deferred tax assets and estimate whether recoverability of our deferred tax assets is “more likely than not,” based on forecasts of taxable income in the related tax jurisdictions. In determining the requirement for a valuation allowance, the historical results, projected future operating results based upon approved business plans, eligible carry forward periods, and tax planning opportunities are considered, along with other relevant positive and negative evidence. If, based upon available evidence, it is more likely than not the deferred tax assets will not be realized, a valuation allowance is recorded. During 2023, we recorded a full valuation allowance against the deferred tax asset established for the current year estimated increase in disallowed interest expense deductions in the U.S., resulting in an increase in tax expense of approximately $31.0 million. During 2024, we recorded a decrease in the valuation allowance against the deferred tax asset related to previously disallowed interest expense deductions in the U.S., resulting in a decrease in tax expense of approximately $5.3 million. During 2025, we increased our valuation allowance as a result of losses in non-U.S. jurisdictions with no corresponding tax benefit, including a total of $23.1 million in China, Germany and the United Kingdom, which was partially offset by a decrease in the valuation allowance of $18.4 million as a result of the impact of the enactment of the OBBB.
Further, due to the uncertainty associated with the potential impact of geopolitical conflicts or events, as well as macroeconomic factors, including sustained or increased inflation, renegotiated trade agreements, and tariffs or import restrictions, we may experience lower than projected earnings in certain jurisdictions in future periods and, as a result, it is reasonably possible that changes in valuation allowances could be recognized in future periods and such changes could be material to our financial statements.
During 2024 and 2023, we increased existing valuation allowances by $26.0 million and $8.9 million, respectively, as a result of net losses in certain jurisdictions with no corresponding tax benefit. Our valuation allowance was impacted in 2024 and 2023 by a net tax expense (benefit) of $(5.1) million, and $36.1 million, respectively, resulting from changes in determinations relating to the potential realization of deferred tax assets and the resulting establishment of, or release of, valuation allowances, as well as the increase in valuation allowances related to the disallowed U.S. interest expense deductions.
As of December 31, 2025 and December 31, 2024, we have a valuation allowance of $313.6 million and $288.8 million, respectively, related to net deferred tax assets in several non-U.S. jurisdictions and U.S. federal, state and local jurisdictions.
INCOME TAXES PAID
The following table provides additional detail on our income taxes paid, net of refunds, in 2025. Income taxes paid by jurisdiction include all jurisdictions that individually exceed 5% of our total income taxes paid, net of refunds received.
| 2025 | |||||
| Income Taxes Paid by Taxing Authority | (in millions) | ||||
| U.S. federal | $ | 1.7 | |||
| U.S. state and local | 0.4 | ||||
| Non-U.S. | 52.5 | ||||
| Total | $ | 54.6 | |||
| Income Taxes Paid by Jurisdiction | |||||
| Brazil | $ | 5.4 | |||
| China | 8.8 | ||||
| Germany | 6.9 | ||||
| India | 7.7 | ||||
| Mexico | 17.6 | ||||
| Thailand | 3.5 | ||||
UNRECOGNIZED INCOME TAX BENEFITS To the extent that we have uncertain tax positions, a determination is made as to whether such positions meet the “more likely than not” threshold. This threshold must be met in order to record any tax benefit and, to the extent that an uncertain tax position meets the "more likely than not" threshold, we have measured and recorded the highest probable benefit, and have established appropriate reserves for benefits that exceed the amount likely to be sustained upon examination.
A reconciliation of the beginning and ending amounts of unrecognized income tax benefits is as follows:
| Unrecognized Income Tax | Interest and | ||||||||||
| Benefits | Penalties | ||||||||||
| (in millions) | |||||||||||
| Balance at January 1, 2023 | $ | 37.2 | $ | 3.3 | |||||||
| Increase in prior year tax positions | 1.7 | 0.5 | |||||||||
| Decrease in prior year tax positions | (9.3) | (0.6) | |||||||||
| Increase in current year tax positions | 11.8 | — | |||||||||
| Tekfor acquisition | — | — | |||||||||
| Foreign currency remeasurement adjustment | 0.7 | — | |||||||||
| Balance at December 31, 2023 | $ | 35.2 | $ | 2.9 | |||||||
| Increase in prior year tax positions | 0.2 | 0.3 | |||||||||
| Decrease in prior year tax positions | (7.7) | — | |||||||||
| Increase in current year tax positions | 4.6 | — | |||||||||
| Settlement | — | — | |||||||||
| Foreign currency remeasurement adjustment | (1.3) | — | |||||||||
| Balance at December 31, 2024 | $ | 31.0 | $ | 3.2 | |||||||
| Increase in prior year tax positions | 6.4 | — | |||||||||
| Decrease in prior year tax positions | (2.6) | (2.9) | |||||||||
| Increase in current year tax positions | 1.1 | — | |||||||||
| Settlement | (4.6) | — | |||||||||
| Foreign currency remeasurement adjustment | 1.0 | — | |||||||||
| Balance at December 31, 2025 | $ | 32.3 | $ | 0.3 | |||||||
At December 31, 2025 and December 31, 2024, we had $32.3 million and $31.0 million of gross unrecognized income tax benefits, respectively. In 2025, 2024 and 2023, we reduced our liability for unrecognized income tax benefits and related interest and penalties as a result of a change in estimate on previously recorded unrecognized tax benefits in certain jurisdictions.
In 2025, 2024, and 2023, we recognized a tax expense/(benefit) of $(2.9) million, $0.3 million and $(0.1) million, respectively, related to interest and penalties in Income tax expense (benefit) on our Consolidated Statements of Operations. We have a liability of $0.3 million and $3.2 million related to the estimated future payment of interest and penalties at December 31, 2025 and 2024, respectively. The amount of the unrecognized income tax benefits, including interest and penalties, as of December 31, 2025 that, if recognized, would affect the effective tax rate is $32.6 million.
We operate in multiple jurisdictions throughout the world and the income tax returns of several subsidiaries in various tax jurisdictions are currently under examination. We are currently under a U.S. federal income tax examination for years 2015 through 2022. Generally, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities prior to 2015. Based on the status of ongoing tax audits and the protocol of finalizing audits by the relevant tax authorities, it is not possible to estimate the impact of changes, if any, to previously recorded uncertain tax positions. Negative or unexpected outcomes of tax examinations and audits, and any related litigation, could have a material adverse impact on our results of operations, financial condition and cash flows. We will continue to monitor the progress and conclusions of all ongoing audits and other communications with tax authorities and will adjust our estimated liability as necessary.
Other Income Tax Matters
Pending Tax Litigation
During their examination of our 2015 U.S. federal income tax return, the Internal Revenue Service (IRS) asserted that income earned by a Luxembourg subsidiary from its Mexican branch operations should be categorized as foreign base company sales income (FBCSI) under Section 954(d) of the Internal Revenue Code and recognized currently as taxable income on our 2015 U.S. federal income tax return. As a result of this assertion, the IRS issued a Notice of Proposed Adjustment (NOPA). The Company disagreed with the NOPA, believes that the proposed adjustment is without merit and contested the matter through the IRS's administrative appeals process. No resolution was reached in the appeals process and, in September 2022, the IRS issued a Notice of Deficiency. The IRS subsequently issued a Notice of Tax Due in December 2022 and we paid the assessed tax and interest of $10.1 million in January 2023. We filed a claim for refund for the amount of tax and interest paid related to this matter for the 2015 tax year and, in December 2023, we filed suit in the U.S. Court of Federal Claims. We have a trial date set to begin court proceedings on this matter in 2026.
We believe, after consultation with tax and legal counsel, that it is more likely than not that our structure did not give rise to FBCSI, and it's likely that we will be successful in ultimately defending our position. As such, we have not recorded any impact of the IRS’s proposed adjustment in our consolidated financial statements as of, and for the years ended, December 31, 2025, December 31, 2024 and December 31, 2023, with the exception of the cash payment and associated income tax receivable of $10.1 million paid by the Company to the IRS in 2023. As of December 31, 2025, in the event the Company is not successful in defending its position, the potential additional income tax expense, including estimated interest charges, related to tax years 2015 through 2023, is estimated to be in the range of approximately $335 million to $385 million.
The IRS has subsequently issued to the Company additional NOPAs for this matter for each of the tax years 2016 through 2022. The issuance of these NOPAs does not impact the aforementioned estimated range of potential income tax expense and interest charges and does not alter our belief that it is more likely than not that our structure did not give rise to FBCSI and that it’s likely that we will be successful in ultimately defending our position.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 13, 2026 | Showing above |
| 2024 | Feb 14, 2025 | |
| 2023 | Feb 16, 2024 | |
| 2022 | Feb 17, 2023 | |
| 2021 | Feb 11, 2022 | |
| 2020 | Feb 12, 2021 | |
| 2019 | Feb 14, 2020 | |
| 2018 | Feb 15, 2019 | |
| 2017 | Feb 16, 2018 | |
| 2016 | Feb 10, 2017 | |
| 2015 | Feb 12, 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.