Element Solutions IncESI
Element Solutions Inc Income Taxes Disclosure
INCOME TAXES
Income before income taxes and non-controlling interests was as follows:
| Year Ended December 31, | ||||||||||||||||||||
(dollars in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Domestic | $ | 36.1 | $ | 48.7 | $ | 2.6 | ||||||||||||||
| Foreign | 229.5 | 239.0 | 126.5 | |||||||||||||||||
| Total | $ | 265.6 | $ | 287.7 | $ | 129.1 | ||||||||||||||
Income tax expense consisted of the following:
| Year Ended December 31, | ||||||||||||||||||||
(dollars in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Current: | ||||||||||||||||||||
| U.S.: | ||||||||||||||||||||
| Federal | $ | (3.7) | $ | (1.6) | $ | 7.9 | ||||||||||||||
| State and local | 1.7 | 2.5 | 2.7 | |||||||||||||||||
| Foreign | 89.2 | 83.1 | 72.3 | |||||||||||||||||
| Total current | 87.2 | 84.0 | 82.9 | |||||||||||||||||
| Deferred: | ||||||||||||||||||||
| U.S.: | ||||||||||||||||||||
| Federal | (6.6) | 1.9 | (57.2) | |||||||||||||||||
| State and local | 2.0 | 1.5 | (0.6) | |||||||||||||||||
| Foreign | (8.0) | (42.6) | (12.1) | |||||||||||||||||
| Total deferred | (12.6) | (39.2) | (69.9) | |||||||||||||||||
| Income tax expense | $ | 74.6 | $ | 44.8 | $ | 13.0 | ||||||||||||||
Income tax expense differed from the U.S. federal statutory tax rate as a result of the following:
| Year Ended December 31, 2025 | ||||||||||||||
(dollars in millions) | Amount | Percent | ||||||||||||
| U.S. federal statutory income tax rate | $ | 55.8 | 21.0 | % | ||||||||||
State and local income taxes, net of federal income tax effect (2) | 3.0 | 1.1 | % | |||||||||||
| Foreign tax effects | ||||||||||||||
| China | ||||||||||||||
| Withholding taxes | 11.3 | 4.2 | % | |||||||||||
| Foreign Rate Differential | 2.9 | 1.0 | % | |||||||||||
| Other | 2.8 | 1.0 | % | |||||||||||
| Germany | ||||||||||||||
| State Taxes | (2.9) | (1.1) | % | |||||||||||
| Other | 8.8 | 3.3 | % | |||||||||||
India | 2.9 | 1.0 | % | |||||||||||
| Malaysia | 1.5 | 0.5 | % | |||||||||||
| Netherlands | ||||||||||||||
| MGS Transaction | (12.4) | (4.7) | % | |||||||||||
| Other | 2.6 | 1.0 | % | |||||||||||
| Singapore | 1.2 | 0.4 | % | |||||||||||
| Taiwan | ||||||||||||||
| Withholding Taxes | 4.3 | 1.6 | % | |||||||||||
| Other | 1.3 | 0.5 | % | |||||||||||
| United Kingdom | ||||||||||||||
| MGS Transaction | (7.6) | (2.9) | % | |||||||||||
| Other | 4.1 | 1.5 | % | |||||||||||
| Other foreign jurisdictions | ||||||||||||||
| Withholding Taxes | 3.5 | 1.3 | % | |||||||||||
| Other | 2.9 | 1.1 | % | |||||||||||
| Changes in tax laws or rates enacted in the current period | — | — | % | |||||||||||
| Effect of cross-border tax laws | ||||||||||||||
| Foreign-Derived Intangible Income (FDII) | (13.4) | (5.0) | % | |||||||||||
| Outside basis difference - Graphics business | 22.5 | 8.4 | % | |||||||||||
| Other | 1.3 | 1.0 | % | |||||||||||
| Tax credits | ||||||||||||||
| Foreign tax credits | (21.3) | (8.0) | % | |||||||||||
| Other | (1.9) | (0.7) | % | |||||||||||
| Changes in valuation allowances | (12.7) | (4.8) | % | |||||||||||
| Nontaxable or nondeductible items | ||||||||||||||
| Compensation Limitation | 10.3 | 3.9 | % | |||||||||||
| Other | 1.2 | 0.5 | % | |||||||||||
| Changes in Unrecognized Tax Benefits | 1.3 | 0.5 | % | |||||||||||
| Other Adjustments | 1.3 | 0.5 | % | |||||||||||
| Effective Tax Rate | $ | 74.6 | 28.1 | % | ||||||||||
(1) Disaggregated in accordance with ASU 2023-09, which was adopted prospectively in 2025.
(2) California and Connecticut state taxes made up the majority (greater than 50%) of the tax effect in this category.
| Year Ended December 31, | ||||||||||||||
(dollars in millions) | 2024 | 2023 | ||||||||||||
| U.S. federal statutory tax rate | 21 | % | 21 | % | ||||||||||
| Taxes computed at U.S. statutory rate | $ | 60.4 | $ | 27.1 | ||||||||||
| State income taxes, net of federal benefit | 3.5 | 1.8 | ||||||||||||
| U.S. tax on foreign operations | 4.2 | 1.8 | ||||||||||||
| Section 250 deduction | (10.5) | (10.8) | ||||||||||||
| Foreign tax credits | (13.2) | (8.2) | ||||||||||||
| Foreign tax on foreign operations | 20.8 | 13.0 | ||||||||||||
| Change in valuation allowances | (67.3) | (0.1) | ||||||||||||
| Tax on undistributed foreign earnings | 0.8 | 5.1 | ||||||||||||
| Changes in uncertain tax positions | 6.5 | 1.9 | ||||||||||||
| Non-deductible goodwill impairment and Kuprion Acquisition research and development charge | 0.9 | 20.6 | ||||||||||||
| Impact of amended U.S. tax returns | 12.1 | (37.3) | ||||||||||||
| Outside basis difference - Graphics business | (22.5) | — | ||||||||||||
| Gain on Graphics restructuring | 43.6 | — | ||||||||||||
| Rate changes | 6.3 | — | ||||||||||||
| Other, net | (0.8) | (1.9) | ||||||||||||
| Income tax expense | $ | 44.8 | $ | 13.0 | ||||||||||
| Effective tax rate | 16 | % | 10 | % | ||||||||||
(1) As presented prior to adoption of ASU 2023-09, which was adopted prospectively in 2025.
The income tax expense of $74.6 million for the year ended December 31, 2025 is above the statutory U.S. rate primarily driven by a $7.7 million multi-year tax settlement, an increase in non-deductible GAAP expenses for a 2025 executive share grant, withholding taxes, valuation allowances on foreign tax credits and the impact of changes to the geographical mix of earnings. These are partially offset by a continued U.S. benefit related to claiming foreign tax credits and deductions for FDII.
On February 28, 2025, the Company completed the MGS Transaction and realized a gain as described in Note 5, Divestitures. This transaction resulted in nominal income tax expense primarily due to the realization of a $22.5 million deferred tax asset and an offsetting release of a valuation allowance.
On July 24, 2025, The One Big Beautiful Bill Act (OBBBA) was enacted extending many of the expiring tax provisions of the Tax Cuts and Jobs Act while adding, modifying and altering numerous other provisions. The Company implemented the changes enacted under the OBBBA.
The income tax expense of $44.8 million for the year ended December 31, 2024, is below the statutory U.S. rate primarily driven by a continued U.S. benefit related to claiming foreign tax credits consistent with our election in the fourth quarter of 2023 and the release of valuation allowances and deductions for FDII, with offsets from withholding taxes, tax attribute expirations and the impact of changes to the geographical mix of earnings.
The rate for 2024 also includes a benefit associated with the release of valuation allowances of $40.8 million previously recorded against certain U.K. tax attribute carryforwards, primarily consisting of net operating loss carryforwards and interest carryforwards. The valuation allowances were released as the Company expects improved profitability in its U.K. business and a shift to a three-year cumulative income position. The Company determined there was sufficient positive, objectively verifiable evidence to conclude that it is more likely than not that, as of December 31, 2024, select U.K. net deferred tax assets will be realized. These expectations are based on actual results, management's assessment of projected future taxable income, and expected utilization of net operating losses and tax carryforwards.
During the third quarter of 2024, an internal restructuring of the Graphics business was completed which resulted in the recognition of a capital gain of $208 million. The gain was offset by capital losses generated in 2024 totaling $10.1 million and capital loss carryforwards of $198 million. The capital gain provided income of the appropriate character to support the release of a valuation allowance on the amount of the capital loss carryforward utilized. The remaining unused capital loss carryforward with a full valuation allowance expired at the close of 2024. The capital gain also resulted in a higher interest expense deduction and, consequentially, a lower deduction for FDII and lower utilization of certain foreign tax credits carryforwards before expiration. The gain resulted in a step-up in tax basis and the Company recorded a deferred tax asset of $22.5 million on the excess of stock tax basis over book basis due to the subsequent held for sale classification offset with a full valuation allowance. As noted above, this deferred tax asset and the corresponding valuation allowance were realized and released in connection with the MGS Transaction.
Also, during 2024, the Company finalized the 2023 consolidated U.S. federal income tax return along with prior years amended federal corporate income tax returns related to crediting foreign taxes including the return-to-provision true-up of foreign tax credits, valuation allowances and prior year one-time benefit.
The income tax expense of $13.0 million for the year ended December 31, 2023, included a discrete benefit of $34.2 million related to changing an election to credit foreign taxes from our previous position which was to deduct foreign taxes. This is comprised of a $37.3 million impact of amending prior U.S. tax returns offset by $3.1 million from the net increase of valuation allowances on foreign tax credit carryforwards. In addition, the election to credit foreign taxes for the 2023 fiscal year resulted in an incremental $8.2 million of tax expense reduction.
The rate for 2023 also includes an increase for non-deductible GAAP expenses related to a goodwill impairment charge of $80.0 million recognized in the third quarter of 2023 (see Note 8, Goodwill and Intangible Assets, Net, to the Consolidated Financial Statements for further information), as well as $15.7 million of research and development expenses related to the Kuprion transaction (see Note 4, Acquisitions, to the Consolidated Financial Statements for further information). Other activity in the 2023 tax rate includes a benefit from a U.S. tax deduction related to FDII, offset by current and deferred taxes based on jurisdictional mix of earnings and withholding taxes. The income tax expense of $13.0 million for the year ended December 31, 2023, included current and deferred taxes based on jurisdictional earnings, withholding taxes, and the impact of GILTI and subpart F income regimes.
The components of deferred income taxes at December 31, 2025 and 2024 were as follows:
| December 31, | ||||||||||||||
(dollars in millions) | 2025 | 2024 | ||||||||||||
| Deferred tax assets: | ||||||||||||||
| Net operating losses | $ | 83.4 | $ | 79.5 | ||||||||||
| Interest carryforward | 104.4 | 74.9 | ||||||||||||
| Capital loss carryforward | 4.6 | 4.2 | ||||||||||||
| Tax credits | 49.3 | 47.3 | ||||||||||||
| Employee benefits | 13.0 | 14.4 | ||||||||||||
| Research and development costs | 36.6 | 30.5 | ||||||||||||
| Accrued liabilities | 5.7 | 5.3 | ||||||||||||
| Outside basis difference - Graphics business | — | 22.5 | ||||||||||||
| Other | 40.5 | 32.7 | ||||||||||||
| Total gross deferred tax assets | 337.5 | 311.3 | ||||||||||||
| Valuation allowances | (63.1) | (69.5) | ||||||||||||
| Total deferred tax assets | 274.4 | 241.8 | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Intangible assets | 111.6 | 130.6 | ||||||||||||
| Property, plant and equipment | 25.3 | 26.7 | ||||||||||||
| Undistributed foreign earnings | 39.4 | 32.9 | ||||||||||||
| Goodwill | 15.6 | 12.2 | ||||||||||||
| Other | 0.1 | — | ||||||||||||
| Total deferred tax liabilities | 192.0 | 202.4 | ||||||||||||
| Net deferred tax asset (liability) | $ | 82.4 | $ | 39.4 | ||||||||||
The Company provides for income and withholding taxes on previously unremitted earnings of foreign subsidiaries. At December 31, 2025, the Company had accrued a deferred tax liability of $39.4 million of income and withholding taxes that would be due upon the distribution of such earnings from non-U.S. subsidiaries to the U.S.
At December 31, 2025, the Company had state and foreign net operating loss carryforwards of approximately $503 million and $227 million, respectively. The majority of the state net operating loss carryforwards expire between 2025 and 2042. The foreign tax net operating loss carryforwards expire between 2025 through 2037 or may be carried forward indefinitely. In addition, at December 31, 2025, the Company had capital loss carryforwards, foreign tax credits, and other tax credits of approximately $18.4 million, $43.4 million and $5.9 million, respectively. The carryforward periods of these tax credits range from ten years to an unlimited period of time. If certain changes in the Company's ownership occur, there could be an annual limitation on the amounts of utilizable carryforwards.
Uncertain Tax Positions
The following table summarizes the activity related to the Company’s unrecognized tax benefits:
| Year Ended December 31, | ||||||||||||||||||||
(dollars in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Unrecognized tax benefits at beginning of period | $ | 122.5 | $ | 111.6 | $ | 99.8 | ||||||||||||||
| Additions based upon prior year tax positions | 7.7 | 14.9 | 19.6 | |||||||||||||||||
| Additions based on current year tax positions | 12.8 | 13.8 | 9.6 | |||||||||||||||||
| Reductions for prior period positions | (4.8) | (3.4) | (15.1) | |||||||||||||||||
| Reductions for settlements and payments | (7.6) | (3.3) | (1.6) | |||||||||||||||||
| Reductions due to closed statutes | (8.8) | (8.4) | (1.3) | |||||||||||||||||
| Currency translation adjustment | 3.9 | (2.7) | 0.6 | |||||||||||||||||
| Total unrecognized tax benefits at end of period | $ | 125.7 | $ | 122.5 | $ | 111.6 | ||||||||||||||
At December 31, 2025, the Company had $126 million of total unrecognized tax benefits, a portion of which, if recognized, would impact the Company’s effective tax rate or disclosures due to potential valuation allowances and the existence of indirect effects.
The Company recognizes interest and/or penalties related to income tax matters as part of income tax expense, which totaled $0.3 million, $2.6 million and $3.7 million, for 2025, 2024 and 2023, respectively. The Company's liability for interest and penalties totaled $11.6 million and $11.2 million at December 31, 2025 and 2024, respectively.
At December 31, 2025, the following tax years remained subject to examination by the major tax jurisdictions indicated below:
| Major Jurisdictions | Open Years | |||||||||||||
| China | 2019 | through current | ||||||||||||
| Germany | 2019 | through current | ||||||||||||
| Taiwan | 2024 | through current | ||||||||||||
| United Kingdom | 2009, 2022 | through current | ||||||||||||
| United States | 2022 | through current | ||||||||||||
The Company is currently undergoing tax examinations in several jurisdictions. Although the Company believes it has appropriately accrued for the expected outcome of uncertain tax matters and made reasonable provisions for taxes ultimately expected to be paid, tax liabilities may need to be adjusted as tax examinations continue to progress.
| Year Ended December 31, 2025 | ||||||||
(dollars in millions) | Amount | |||||||
| Federal | $ | 2.0 | ||||||
| State | 2.1 | |||||||
| Foreign | ||||||||
| China | 47.3 | |||||||
| Brazil | 6.9 | |||||||
| India | 6.9 | |||||||
| Taiwan | 5.6 | |||||||
| All Other Foreign | 28.0 | |||||||
| Total | $ | 98.8 | ||||||
In 2025, the above noted foreign jurisdictions equaled or exceeded 5% of the total income taxes paid.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 18, 2026 | Showing above |
| 2024 | Feb 19, 2025 | |
| 2023 | Feb 21, 2024 | |
| 2022 | Feb 22, 2023 | |
| 2017 | Feb 28, 2018 | |
| 2016 | Mar 13, 2017 | |
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.