EDAP TMS SA Income Taxes Disclosure
23— INCOME TAXES
23-1 Income / (Loss) before income taxes
Income / (loss) before income taxes is comprised of the following:
Year Ended December 31, | ||||
| 2025 | | 2024 | |
France | (15,513) | (5,630) | ||
Other countries |
| (13,295) |
| (14,641) |
Total |
| (28,808) |
| (20,271) |
23-2 Income tax (expense)/ benefit
Income tax (expense)/benefit consists of the following:
Year Ended December 31, | ||||
| 2025 | | 2024 | |
Current income tax expense: | | | ||
France |
| (45) |
| (50) |
Other countries |
| (558) |
| (384) |
Sub-total current income tax expense |
| (603) |
| (434) |
Deferred income tax (expense) benefit: |
| |
| |
France |
| 2 |
| 5 |
Other countries |
| 163 |
| 116 |
Sub-total deferred income tax (expense) benefit |
| 165 |
| 121 |
Total |
| (438) |
| (313) |
23-3 Deferred income taxes:
Deferred income taxes reflect the impact of temporary differences between the amounts of assets and liabilities reported for financial reporting purposes and such amounts as measured in accordance with tax laws. The tax effects of temporary differences which give rise to significant deferred tax assets (liabilities) are as follows by nature:
| 2025 | | 2024 | |
Net operating loss carry forwards | 29,392 | 21,551 | ||
Elimination of intercompany profit in inventory |
| 351 |
| 469 |
Elimination of intercompany profit in fixed assets |
| 596 |
| 428 |
Provisions for retirement indemnities |
| 780 |
| 716 |
Capital leases treated as operating leases for tax |
| 9 |
| 8 |
Other items |
| 552 |
| 369 |
Total deferred tax assets |
| 31,679 |
| 23,542 |
Total deferred tax liabilities |
| — |
| — |
Net deferred tax assets |
| 31,679 |
| 23,542 |
Valuation allowance for deferred tax assets |
| (30,585) |
| (22,677) |
Deferred tax assets (liabilities), net of allowance |
| 1,094 |
| 865 |
Net operating loss carryforwards available amount to $129,037 thousand as of December 31, 2025, of which $54,135 thousand relates to EDAP TMS SA, $73,160 thousand relates to Edap Technomed Inc., $735 thousand relates to Edap TMS Gmbh and $1,007 thousand relates to Edap Technomed Co Ltd Japan. These net operating losses generate deferred tax assets of $29,392 thousand as at December 31, 2025. Realization of these tax assets is contingent on future taxable earnings in the applicable tax jurisdictions. As of December 31, 2025, $128,030 thousand out of these $129,037 thousand net operating loss carry-forwards have no expiration date but the amount of the net operating loss carry-forward, which can be used each year to offset taxable earnings, is limited in all jurisdictions. The remaining tax loss carry-forwards expire in 2025. In accordance with ASC 740, a valuation allowance is established if, based on the weight of available evidence, it is more-likely-than-not that some portion or all of the deferred tax asset will not be realized.
23-4 Effective tax income (expense)
A reconciliation of differences between the statutory and the Company’s effective tax income (loss) is as follows:
| 2025 | | 2024 | |||
Theoretical income tax (expense) benefit at French statutory tax rate | 7,202 | 25.0% | 5,068 | 25.0% | ||
Income of foreign subsidiaries taxed at different tax rates |
| (589) | (2.0)% |
| (591) | (2.9)% |
Effect of net operating loss carry-forwards and valuation allowances |
| (6,185) | (21.5)% |
| (4,796) | (23.7)% |
Non-taxable debt fair value variation |
| (622) | (2.2)% |
| — | 0.0% |
Permanent differences |
| (184) | (0.6)% |
| (305) | (1.5)% |
Effect of cancellation of intra-group positions |
| (1) | 0.0% |
| 289 | 1.4% |
French business tax included in income tax (CVAE) |
| (34) | (0.1)% |
| (44) | (0.2)% |
Other |
| (25) | (0.1)% |
| 67 | 0.3% |
Effective income tax (expense) benefit |
| (438) | (1.5)% |
| (313) | (1.5)% |
The valuation allowances for deferred taxes presented on the line "Effect of net operating loss carry-forwards and valuation allowances" include some additional categories compared to note 23-3 and include mainly R&D tax credit, stock options and foreign exchange rates.
23-5 Uncertainty in Income Taxes
According to ASC 740, the Company reviewed the tax positions of each subsidiary. On December 31, 2025 the Company believes that there is no significant uncertainty in the Company’s tax positions.
The Company remains subject to examination by major tax jurisdictions.
Interest and penalties on income taxes are classified as a component of the provision for income taxes. There were no interest or penalties in 2025 and 2024.
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.