ECOLAB INC. Income Taxes Disclosure

12. INCOME TAXES

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Income before income taxes consisted of:

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Presentation of prior year amounts relating to U.S. and International income before taxes have been recast to conform with the current year presentation, which is before intercompany eliminations. As a result, prior year amounts presented for U.S. and International current and deferred taxes have also been recast to conform with the current year presentation. This had no effect on the reported results of operations.

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The provision (benefit) for income taxes consisted of:

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The Company’s overall net deferred tax assets and deferred tax liabilities were comprised of the following:

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As of December 31, 2025, the Company has tax effected federal, state and international net operating loss carryforwards of $21.8 million, $16.0 million and $135.7 million, respectively, and tax effected federal and state tax capital loss carryforwards of $14.3 million and $2.0 million, respectively, which will be available to offset future taxable income. The federal net operating loss carryforwards of $9.4 million have no expiration and $12 million expire from 2036 to 2037. State net operating losses of $16.0 million expire from 2026 to 2046. The international loss carryforwards of $92.6 million expire from 2026 to 2046 and $43.1 million have no expiration. The federal and state capital loss carryforwards of $16.3 million expire from 2026 to 2039. The tax loss carryforwards expiring in 2026 are not material.

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Additionally, the Company has $132.2 million of net credit carryforwards that are primarily related to U.S. foreign tax credits and various state and international credits. The U.S. foreign tax credit carryforwards of $117.2 million expire from 2030 to 2036. Other state and international credit carryforwards will expire from 2026 to 2034. The tax credit carryforwards expiring in 2026 are not material.

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The Company has valuation allowances on certain deferred tax assets of $90.8 million and $77.8 million at December 31, 2025 and 2024, respectively. The increase in valuation allowance was primarily related to acquired international net operating loss carryforwards of Ovivo Electronics.

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In connection with the implementation of Organization for Economic Co-operation and Development (“OECD”) global minimum tax initiative known as Pillar Two, any existing deferred taxes not disclosed in the Company’s financial statements will not be available in the future to reduce tax otherwise due under Pillar Two. Accordingly, the Company is disclosing the existence of gross tax loss carryforwards in Luxembourg of $1.5 billion. The losses are determined to have a remote possibility of realization and, therefore, are not reported in the table above.

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On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, such as permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. An estimate of the financial impact has been included in operating results as of December 31, 2025. While the Company expects certain provisions of OBBBA to change the timing of U.S. cash taxes related to the current and future periods, OBBBA did not have a material impact to the Company’s income tax expense.

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The Company has elected to prospectively adopt the guidance in ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Taxes Disclosures, or ASU 2023-09. The following table is a reconciliation of the U.S. federal statutory rate of 21% to the Company’s effective rate for the year ended December 31, 2025, in accordance with ASU 2023-09.

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The following table is a reconciliation of the U.S. federal statutory rate of 21% to the Company’s effective rate for the years ended December 31, 2024, and 2023 prior to the adoption of ASU 2023-09:

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The change in the Company’s effective income tax rate includes the tax impact of special (gains) and charges and discrete tax items, which have impacted the comparability of the Company’s historical effective income tax rates, as amounts included in special (gains) and charges are derived from tax jurisdictions with rates that vary from the statutory U.S. rate, and discrete tax items are not necessarily consistent across periods. The tax impact of special (gains) and charges and discrete tax items will likely continue to impact comparability of the Company’s effective income tax rate in the future.

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The Company’s 2025 effective tax rate of 17.8% includes $35.2 million of net tax benefits on special (gains) and charges, a net tax benefit of $57.5 million associated with discrete items, and $1.0 million of net tax benefits from Ovivo Electronics. Discrete items include a tax benefit of $21.5 million associated with recognition of deferred tax attributes and $16.8 million related to share-based compensation excess tax benefits. The remaining net discrete tax benefit of $19.2 million was primarily related to the filing of federal, state and foreign tax returns and other income tax adjustments including the impact of changes in tax laws, audit settlements, and other changes in estimates.

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The Company’s 2024 effective tax rate of 17.1% includes $56.9 million of net tax expenses on special (gains) and charges, and net tax benefit of $78.6 million associated with discrete items. Discrete items include a tax benefit of $62.1 million associated with a change to the tax classification of a wholly-owned non-US subsidiary that resulted in recognizing a capital loss and benefit of $30.4 million due to an increase in the tax basis of foreign intangible assets. The remaining net discrete tax expense of $13.9 million was primarily related to the filing of federal, state and foreign tax returns and other income tax adjustments including the impact of changes in tax laws, audit settlements, share-based compensation excess tax benefit and other changes in estimates.

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The Company’s 2023 effective tax rate of 20.6% includes $24.7 million of net tax benefits on special (gains) and charges, and net tax expense of $11.2 million associated with discrete items. The net discrete tax expense was primarily related to the filing of federal, state and foreign tax returns and other income tax adjustments including the impact of changes in tax laws, audit settlements, share-based compensation excess tax benefit and other changes in estimates.

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In 2025, the Company recorded a deferred tax liability of $100.1 million associated with undistributed earnings of international affiliates. The Company also recognized a deferred tax asset of $72.2 million related to foreign net operating losses available to offset taxable earnings no longer considered permanently reinvested. The Company otherwise continues to assert permanent reinvestment of the undistributed earnings of international affiliates unless the earnings can be remitted in a net income tax benefit or tax-neutral manner. If there are policy changes, the Company would record the applicable taxes in the period of change.

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A reconciliation of the beginning and ending amount of gross liability for unrecognized tax benefits is as follows:

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The total amount of unrecognized tax benefits, if recognized, would affect the effective tax rate by $50.6 million as of December 31, 2025, $31.5 million as of December 31, 2024 and $21.6 million as of December 31, 2023.

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The Company files U.S. federal income tax returns and income tax returns in various U.S. state and non- U.S. jurisdictions. With few exceptions, the Company is no longer subject to state and foreign income tax examinations by tax authorities for years before 2018. The IRS has completed examinations of the Company’s U.S. federal income tax returns through 2018, and the years 2019 through 2020 are currently under audit. The U.S. federal audit of tax years 2021 through 2024 is expected to begin in 2026. In addition to the U.S. federal examination, there is ongoing audit activity in several U.S. state and foreign jurisdictions.

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The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. The Company had $8.7 million, $5.5 million and $4.0 million of accrued interest, including minor amounts for penalties, at December 31, 2025, 2024 and 2023, respectively.

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The Company paid cash income taxes of $548.1 million, $647.4 million and $469.2 million in 2025, 2024 and 2023, respectively. The payments in 2025 include $126.4 million, $60.5 million, $361.2 million in U.S. federal, state, and international jurisdictions, respectively. International payments are further comprised of income tax payments in Switzerland, China and other international jurisdictions of $37.4 million, $35.6 million and $288.2 million, respectively.