Gates Industrial Corp plcGTES
Gates Industrial Corp plc Income Taxes Disclosure
Income taxes
Provision for income taxes
Gates Industrial Corporation plc is domiciled in the United Kingdom. Income from continuing operations before income taxes is summarized below based on the geographic location of the operation to which such earnings and income taxes are attributable.
| For the year ended | |||||||||||||||||
| (dollars in millions) | December 31, 2025 | December 28, 2024 | December 30, 2023 | ||||||||||||||
| U.K. | $ | 38.6 | $ | 87.8 | $ | 26.4 | |||||||||||
| U.S. | 112.4 | 44.0 | (58.2) | ||||||||||||||
| Other foreign | 189.2 | 196.2 | 317.1 | ||||||||||||||
| Income from continuing operations before income taxes | $ | 340.2 | $ | 328.0 | $ | 285.3 | |||||||||||
Income tax expense on income from continuing operations analyzed by tax jurisdiction is as follows:
| For the year ended | |||||||||||||||||
| (dollars in millions) | December 31, 2025 | December 28, 2024 | December 30, 2023 | ||||||||||||||
| Current tax | |||||||||||||||||
| U.K. | $ | 0.4 | $ | (7.6) | $ | 0.2 | |||||||||||
| U.S. | 65.9 | 44.5 | 18.9 | ||||||||||||||
| Other foreign | 22.8 | 82.7 | 74.9 | ||||||||||||||
| Total current tax expense | $ | 89.1 | $ | 119.6 | $ | 94.0 | |||||||||||
| Deferred income tax | |||||||||||||||||
| U.K. | $ | 8.1 | $ | 16.1 | $ | 9.0 | |||||||||||
| U.S. | (23.6) | (36.0) | (48.6) | ||||||||||||||
| Other foreign | (10.5) | 7.8 | (26.1) | ||||||||||||||
| Total deferred income tax (benefit) | (26.0) | (12.1) | (65.7) | ||||||||||||||
| Income tax expense | $ | 63.1 | $ | 107.5 | $ | 28.3 | |||||||||||
As described in Note 3, effective for the year ended December 31, 2025, we adopted ASU 2023-09 and applied the disclosure requirements on a prospective basis. In accordance with prospective application, we did not recast prior period disclosures.
A reconciliation of the provisions for income taxes to the amount computed by applying the 25% U.K. federal statutory rate to income before income taxes after the adoption of ASU 2023-09 is as follows:
| For the year ended | |||||||||||
| December 31, 2025 | |||||||||||
| (dollars in millions) | Dollars | Percentages | |||||||||
U.K. federal statutory rate | $ | 85.0 | 25.0 | % | |||||||
—Foreign tax effects: | |||||||||||
China | |||||||||||
—Withholding taxes(2) | 7.3 | 2.1 | % | ||||||||
—Statutory tax rate differential | (4.4) | (1.3) | % | ||||||||
—Other permanent items(1) | (0.9) | (0.3) | % | ||||||||
Luxembourg | |||||||||||
—Changes in valuation allowance | 32.3 | 9.5 | % | ||||||||
—Prior year return‑to‑provision adjustments | (6.5) | (1.9) | % | ||||||||
—Currency remeasurement of deferred tax attributes | (26.0) | (7.6) | % | ||||||||
—Other permanent items(1) | (1.5) | (0.4) | % | ||||||||
Türkiye | |||||||||||
—Changes in valuation allowance | 5.9 | 1.7 | % | ||||||||
—Other permanent items(1) | (2.1) | (0.6) | % | ||||||||
United States | |||||||||||
—Statutory tax rate differential | (4.5) | (1.3) | % | ||||||||
—Company-owned life insurance | (9.3) | (2.7) | % | ||||||||
—Share based compensation | (4.4) | (1.3) | % | ||||||||
—Changes in unremitted earnings | 5.2 | 1.5 | % | ||||||||
—Changes in valuation allowance | (24.1) | (7.1) | % | ||||||||
—Effect of cross-border tax laws | |||||||||||
—Global intangible low‑taxed income (GILTI) | 6.6 | 1.9 | % | ||||||||
—Foreign‑derived intangible income (FDII) | (4.7) | (1.4) | % | ||||||||
—Other effect of cross-border tax laws | 1.0 | 0.3 | % | ||||||||
—Tax credits | |||||||||||
—Foreign tax credits | 13.0 | 3.8 | % | ||||||||
—Other tax credits | (3.4) | (1.0) | % | ||||||||
—Other permanent items(1) | 5.0 | 1.5 | % | ||||||||
—Other foreign jurisdictions | 5.1 | 1.5 | % | ||||||||
—Changes in unrecognized tax benefits | (11.0) | (3.2) | % | ||||||||
—Other adjustments | (0.5) | (0.1) | % | ||||||||
| Reported effective income tax rate | $ | 63.1 | 18.6 | % | |||||||
(1) Other permanent items primarily consist of miscellaneous non-deductible expenses, non-taxable income, excess tax benefits, manufacturing incentives and other permanent differences that individually did not exceed the disclosure threshold.
(2) Withholding taxes are accrued in the recipient entity and presented by taxing jurisdiction.
A reconciliation of the provisions for income taxes to the amount computed by applying the respective U.K. federal statutory rate to income before income taxes prior to the adoption of ASU 2023-09 is as follows:
| For the year ended | |||||||||||
| December 28, 2024 | December 30, 2023 | ||||||||||
| U.K. corporation tax rate | 25.0 | % | 23.5 | % | |||||||
| Effect of: | |||||||||||
| —State tax provision, net of Federal benefit | 0.3 | % | (1.5 | %) | |||||||
| —Provision for unrecognized income tax benefits | (3.2 | %) | (4.3 | %) | |||||||
| —Company-owned life insurance | (3.1 | %) | (3.5 | %) | |||||||
—Tax on international operations(1) | 3.3 | % | 2.6 | % | |||||||
—Manufacturing incentives(2) | (0.2 | %) | (4.7 | %) | |||||||
—Change in valuation allowance(3) | (13.9 | %) | (3.1 | %) | |||||||
—Deferred income tax rate changes(4) | 20.7 | % | 0.5 | % | |||||||
| —Currency exchange rate movements | 2.9 | % | 0.6 | % | |||||||
| —Other permanent differences | 1.0 | % | (0.2 | %) | |||||||
| Reported effective income tax rate | 32.8 | % | 9.9 | % | |||||||
(1)“Tax on international operations” includes U.S. tax on foreign earnings and unremitted earnings of foreign subsidiaries, foreign deferred tax adjustments, and effects of global funding structures and differences between statutory and foreign tax rates.
(2)“Manufacturing incentives” for Fiscal 2024 totaled $0.7 million, primarily related to incentives generated in the U.S. and Canada. Fiscal 2023 totaled $13.3 million, related to incentives generated in Türkiye, Poland and the U.S.
(3)“Change in valuation allowance” is comprised primarily of:
(dollars in millions) | For the year ended | ||||||||||
| Expense (benefit) | December 28, 2024 | December 30, 2023 | |||||||||
| Luxembourg currency revaluation on indefinite-lived net operating losses | $ | (9.4) | $ | (5.7) | |||||||
| Luxembourg deferred income tax rate change | $ | (42.9) | $ | — | |||||||
| Poland tax credits | $ | 3.7 | $ | — | |||||||
| Türkiye net operating losses | $ | 5.5 | $ | — | |||||||
| U.S. foreign tax credits | $ | (3.2) | $ | 0.4 | |||||||
| U.S. finite-lived net operating losses | $ | 3.4 | $ | (2.1) | |||||||
(4)“Deferred income tax rate changes” includes Luxembourg rate changes which totaled $67.0 million, of which $44.2 million had a full valuation allowance against them.
Income Taxes Paid (Net of Refunds):
(dollars in Millions) | For the year ended December 31, 2025 | ||||
Jurisdiction | Cash Taxes Paid | ||||
| United Kingdom | $ | — | |||
| Canada | $ | 9.0 | |||
| China | $ | 21.3 | |||
| Japan | $ | 10.1 | |||
| United States | $ | 32.4 | |||
| Other Foreign Jurisdictions | $ | 38.7 | |||
| Total Income Taxes Paid (Net of Refunds) | $ | 111.5 | |||
Deferred income tax assets (liabilities)
Deferred income tax assets (liabilities) recognized by the Company were as follows:
| (dollars in millions) | As of December 31, 2025 | As of December 28, 2024 | |||||||||
| Deferred income tax assets: | |||||||||||
| Accounts receivable | $ | 27.8 | $ | 34.0 | |||||||
| Lease liabilities | 40.2 | 40.9 | |||||||||
| Accrued expenses | 28.3 | 35.8 | |||||||||
Postretirement benefit obligations | 14.0 | 16.9 | |||||||||
| Compensation | 16.6 | 22.8 | |||||||||
| Net operating losses | 1,573.6 | 1,478.0 | |||||||||
| Capital losses | 202.7 | 190.1 | |||||||||
| Credits | 45.9 | 67.9 | |||||||||
| Interest | 226.1 | 212.3 | |||||||||
| Other items | 10.0 | 8.5 | |||||||||
| $ | 2,185.2 | $ | 2,107.2 | ||||||||
| Valuation allowances | (1,270.0) | (1,240.6) | |||||||||
| Total deferred income tax assets | $ | 915.2 | $ | 866.6 | |||||||
| Deferred income tax liabilities: | |||||||||||
| Inventories | $ | (12.9) | $ | (12.3) | |||||||
| Property, plant and equipment | (16.2) | (22.1) | |||||||||
| Lease right-of-use assets | (35.8) | (36.1) | |||||||||
| Intangible assets | (235.1) | (278.7) | |||||||||
| Undistributed earnings | (24.5) | (20.7) | |||||||||
| Total deferred income tax liabilities | $ | (324.5) | $ | (369.9) | |||||||
| Net deferred income tax assets | $ | 590.7 | $ | 496.7 | |||||||
As of December 31, 2025, the Company had the following loss and credit carryforward amounts:
•Gates had net operating losses amounting to $6,648.7 million consisting primarily of $6,400.7 million in Luxembourg, and $102.9 million in the U.S. (federal and state). Operating losses of $3,281.5 million can be carried forward indefinitely consisting primarily of $3,159.0 million in Luxembourg, and $122.5 million in the U.S. and other foreign jurisdictions. The remaining losses of $3,367.1 million have expiration dates between 2026 and 2045, consisting primarily of $3,241.7 million in Luxembourg, and $125.4 million in the U.S. and other foreign jurisdictions. We recognized a related deferred income tax asset of $574.8 million after valuation allowance of $998.8 million;
•Gates had capital losses amounting to $812.7 million, consisting of $787.1 million in the U.K., and $25.6 million in the U.S. Capital losses of $800.9 million can be carried forward indefinitely, primarily consisting of $787.1 million in the U.K, and $11.8 million in the U.S. that expire in 2026. We recognized no related deferred income tax asset after valuation allowance of $202.7 million;
•Gates had tax credits amounting to $45.9 million, consisting primarily of $38.3 million in U.S. federal foreign tax credits and $7.6 million of other credits in Poland related to special economic zone business credits which expire in 2026. We recognized a related deferred income tax asset of $7.7 million after valuation allowance of $38.2 million; and
•Gates had interest expense deductions which can be carried forward amounting to $960.4 million, consisting primarily of $681.4 million in the U.S., $241.3 million in Luxembourg, and $37.7 million in other foreign jurisdictions. Interest expense deductions in these jurisdictions can be carried forward indefinitely. We recognized a related deferred tax asset of $204.6 million after valuation allowance of $21.5 million.
As of December 31, 2025, income and withholding taxes in the various tax jurisdictions in which Gates operates have not been provided on certain taxable temporary differences related to the investments in the Company’s subsidiaries. These temporary differences represent the estimated excess of the financial reporting over the tax basis in our investments in those subsidiaries, which are primarily the result of purchase accounting adjustments. These temporary differences are not expected to reverse in the foreseeable future but could become subject to income and withholding taxes in the various tax jurisdictions in which Gates operates if they were to reverse. The amount of unrecognized deferred income tax liability on these taxable temporary differences has not been determined because the hypothetical calculation is not practicable due to the uncertainty as to how they may reverse. However, Gates has recognized a deferred income tax liability of $24.5 million on taxable temporary differences related to undistributed earnings of the Company’s subsidiaries.
Recoverability of Deferred Income Tax Assets and Liabilities
We recognize deferred tax assets and liabilities for future tax consequences arising from differences between the carrying amounts of existing assets and liabilities under U.S. GAAP and their respective tax bases, and for net operating loss carryforwards and tax credit carryforwards. We evaluate the recoverability of our deferred tax assets, weighing all positive and negative evidence, and are required to establish or maintain a valuation allowance for these assets if we determine that it is more likely than not that some or all of the deferred tax assets will not be realized.
As of each reporting date, we consider new evidence, both positive and negative, that could impact our view with regard to the future realization of deferred tax assets. We maintain our positions with regard to future realization of deferred tax assets, including those with respect to which we continue maintaining valuation allowances, until there is sufficient new evidence to support a change in expectations. Such a change in expectations could arise due to many factors, including those impacting our forecasts of future earnings, as well as changes in the international tax laws under which we operate and tax planning. It is not reasonably possible to forecast any such changes at the present time, but it is possible that, should they arise, our view of their effect on the future realization of deferred tax assets may materially impact our financial statements.
After weighing all of the evidence, giving more weight to the evidence that was objectively verifiable, we determined in Fiscal 2025 that it was more likely than not that deferred income tax assets of $2.4 million primarily in Türkiye related to other deferred tax assets and net operating losses are not realizable.
In Fiscal 2024 , we determined that it was more likely than not that deferred income tax assets of $5.5 million in Türkiye related to net operating losses, $3.7 million in Poland related to special economic zone business credits, and $3.4 million in the U.S. related to net operating losses, are not realizable. Similarly, we determined in Fiscal 2024 that it is more likely than not that deferred income tax assets in the U.S. related to foreign tax credits totaling $3.2 million are realizable as a result of changes in estimates of taxable profits against which these credits can be utilized.
Unrecognized income tax benefits
The following is a reconciliation of the gross beginning and ending amount of unrecognized income tax benefits, excluding interest and penalties:
| For the year ended | |||||||||||||||||
| (dollars in millions) | December 31, 2025 | December 28, 2024 | December 30, 2023 | ||||||||||||||
| At the beginning of the period | $ | 68.4 | $ | 72.5 | $ | 76.0 | |||||||||||
| Increases for tax positions related to the current period | — | 10.7 | 8.5 | ||||||||||||||
| Increases for tax positions related to prior periods | 11.7 | 4.0 | 1.8 | ||||||||||||||
| Decreases for tax positions related to prior periods | (26.1) | (11.7) | (15.0) | ||||||||||||||
| Decreases related to settlements | — | (2.2) | — | ||||||||||||||
| Decreases due to lapsed statute of limitations | (3.8) | — | (2.7) | ||||||||||||||
| Foreign currency translation | 2.6 | (4.9) | 3.9 | ||||||||||||||
| At the end of the period | $ | 52.8 | $ | 68.4 | $ | 72.5 | |||||||||||
Unrecognized income tax benefits represent the difference between the income tax benefits that we are able to recognize for financial reporting purposes and the income tax benefits that we have recognized or expect to recognize in filed tax returns.
If all unrecognized income tax benefits were recognized, the net impact on the provision for income taxes which would impact the effective tax rate would be $17.2 million, including all competent authority offsets.
As of December 31, 2025, December 28, 2024, and December 30, 2023, Gates had accrued $12.7 million, $17.7 million, and $15.6 million, respectively, for the payment of worldwide interest and penalties on unrecognized income tax benefits, which are not included in the table above. For the year ended December 31, 2025, Gates recognized a net benefit of $5.0 million related to interest and penalties on unrecognized income tax benefits. Gates recognizes interest and penalties relating to unrecognized income tax benefits in the provision for income tax expense.
The primary driver of the reduction in unrecognized income tax benefits during Fiscal 2025 relates to audit settlements.
As of December 31, 2025, Gates remains subject to examination in the US for tax years 2016 to 2025 and in other major jurisdictions for tax years 2008 to 2025.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 12, 2026 | Showing above |
| 2024 | Feb 6, 2025 | |
| 2023 | Feb 8, 2024 | |
| 2022 | Feb 9, 2023 | |
| 2021 | Feb 10, 2021 | |
| 2019 | Feb 21, 2020 | |
| 2018 | Feb 14, 2019 | |
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.