Garrett Motion Inc.GTX
Garrett Motion Inc. Income Taxes Disclosure
Note 6. Income Taxes
The sources of income (loss) from continuing operations, before income taxes, classified between domestic entities and those entities domiciled outside of the U.S., are as follows:
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||
| Domestic entities | $ | (40) | $ | (65) | $ | (94) | ||||||||||||||
| Entities outside the U.S. | 432 | 408 | 441 | |||||||||||||||||
| $ | 392 | $ | 343 | $ | 347 | |||||||||||||||
Tax expense (benefit)
Tax expense (benefit) consists of:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (Dollars in millions) | |||||||||||||||||
| Current tax expense (benefit): | |||||||||||||||||
| Federal | $ | 18 | $ | (3) | $ | 12 | |||||||||||
| State | 1 | 1 | — | ||||||||||||||
| Foreign | 54 | 56 | 50 | ||||||||||||||
| Total current tax expense (benefit) | $ | 73 | $ | 54 | $ | 62 | |||||||||||
| Deferred tax expense (benefit): | |||||||||||||||||
| Federal | $ | (6) | $ | (9) | $ | (14) | |||||||||||
| State | — | (1) | 1 | ||||||||||||||
| Foreign | 15 | 17 | 37 | ||||||||||||||
| Total deferred tax expense (benefit) | $ | 9 | $ | 7 | $ | 24 | |||||||||||
| Total income tax expense (benefit): | |||||||||||||||||
| Federal | $ | 12 | $ | (12) | $ | (2) | |||||||||||
| State | 1 | — | 1 | ||||||||||||||
| Foreign | 69 | 73 | 87 | ||||||||||||||
| Total income tax expense (benefit) | $ | 82 | $ | 61 | $ | 86 | |||||||||||
Effective Tax Rate
Effective tax rate includes:
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||||||||
| U.S. federal statutory tax rate | $ | 82 | 21.0 | % | $ | 72 | 21.0 | % | $ | 73 | 21.0 | % | |||||||||||||||||||||||
Domestic state and local income taxes, net of federal income tax effect (1) | — | 0.1 | % | — | (0.1) | % | 1 | 0.3 | % | ||||||||||||||||||||||||||
| Tax credits | (1) | (0.3) | % | (2) | (0.7) | % | (2) | (0.5) | % | ||||||||||||||||||||||||||
| Nontaxable or nondeductible items | — | (0.1) | % | — | (0.1) | % | 1 | 0.3 | % | ||||||||||||||||||||||||||
Effect of cross-border tax laws (2) | |||||||||||||||||||||||||||||||||||
| Global intangible low-taxed income | 17 | 4.3 | % | 11 | 3.3 | % | 19 | 5.6 | % | ||||||||||||||||||||||||||
| US effects of foreign partnership | (1) | (0.2) | % | 6 | 1.8 | % | (1) | (0.4) | % | ||||||||||||||||||||||||||
| Other | (2) | (0.4) | % | 3 | 0.8 | % | 1 | 0.2 | % | ||||||||||||||||||||||||||
| Changes in valuation allowances | 3 | 0.8 | % | — | — | % | 1 | 0.4 | % | ||||||||||||||||||||||||||
| Other | (4) | (1.0) | % | 1 | 0.3 | % | (2) | (0.7) | % | ||||||||||||||||||||||||||
| Foreign tax effects | |||||||||||||||||||||||||||||||||||
| China | |||||||||||||||||||||||||||||||||||
| Enacted changes in tax laws or rates | — | — | % | — | — | % | 28 | 7.9 | % | ||||||||||||||||||||||||||
| Remeasurement deferred taxes | (11) | (2.9) | % | — | — | % | — | — | % | ||||||||||||||||||||||||||
| Tax on distributions | 3 | 0.8 | % | 8 | 2.5 | % | 2 | 0.6 | % | ||||||||||||||||||||||||||
| Other | 6 | 1.6 | % | — | (0.1) | % | (4) | (1.1) | % | ||||||||||||||||||||||||||
| Switzerland | |||||||||||||||||||||||||||||||||||
| Statutory tax rate difference between Switzerland and US | (30) | (7.7) | % | (26) | (7.7) | % | (27) | (7.8) | % | ||||||||||||||||||||||||||
| Changes in valuation allowances | 1 | 0.2 | % | — | 0.1 | % | 8 | 2.3 | % | ||||||||||||||||||||||||||
| Enacted changes in tax laws or rates | — | — | % | — | — | % | (20) | (5.8) | % | ||||||||||||||||||||||||||
| Tax on distributions | 1 | 0.2 | % | 7 | 2.2 | % | — | (0.1) | % | ||||||||||||||||||||||||||
| Investment in JVs | — | — | % | 3 | 1.0 | % | (2) | (0.5) | % | ||||||||||||||||||||||||||
| Cantonal tax | 11 | 2.8 | % | 15 | 4.5 | % | 4 | 1.0 | % | ||||||||||||||||||||||||||
| Statutory impairment of investment in subsidiary - 2024 RTP | (7) | (1.7) | % | — | — | % | — | — | % | ||||||||||||||||||||||||||
| Other | — | — | % | (6) | (1.7) | % | 3 | 0.8 | % | ||||||||||||||||||||||||||
| India | 8 | 2.0 | % | 7 | 1.9 | % | 3 | 0.8 | % | ||||||||||||||||||||||||||
| Thailand | — | — | % | 5 | 1.3 | % | — | — | % | ||||||||||||||||||||||||||
| Brazil | |||||||||||||||||||||||||||||||||||
| Changes in valuation allowances | — | — | % | (19) | (5.6) | % | — | 0.1 | % | ||||||||||||||||||||||||||
| Other | 3 | 0.7 | % | (2) | (0.5) | % | 1 | 0.2 | % | ||||||||||||||||||||||||||
| Korea | |||||||||||||||||||||||||||||||||||
| Tax refund | — | — | % | — | — | % | (4) | (1.2) | % | ||||||||||||||||||||||||||
| Other | 1 | 0.2 | % | 1 | 0.3 | % | — | (0.1) | % | ||||||||||||||||||||||||||
| Stateless | — | — | % | (6) | (1.7) | % | — | — | % | ||||||||||||||||||||||||||
| Other foreign jurisdictions | 4 | 1.0 | % | 5 | 1.5 | % | 7 | 2.6 | % | ||||||||||||||||||||||||||
| Changes in unrecognized tax benefits | (2) | (0.5) | % | (22) | (6.5) | % | (4) | (1.1) | % | ||||||||||||||||||||||||||
| Effective Tax Rate | $ | 82 | 20.9 | % | $ | 61 | 17.8 | % | $ | 86 | 24.8 | % | |||||||||||||||||||||||
(1) State taxes in Michigan and Indiana make up the majority (greater than 50 percent) of the tax effect in this category.
(2) Amounts reflected as net of related foreign tax credits.
The effective tax rate increased by 3.1 percentage points in 2025 compared to 2024. The increase was primarily due to additional unrecognized tax benefits in Switzerland and China as well as prior year benefits associated with the release
of valuation allowance related to deferred tax assets in Brazil (net of U.S. branch taxes) and prior year benefits associated with statute of limitation expiration and settlement of audits in Switzerland and Korea. These increases were partially offset by the revaluation of deferred tax assets related to intellectual property transferred within China which was subject to tax at different rates.
The effective tax rate decreased by 7.0 percentage points in 2024 compared to 2023. The decrease was primarily due to releases of reserves due to statute of limitation expirations and settlements with taxing authorities and release of valuation allowance related to deferred tax assets in Brazil (net of U.S. branch taxes). In addition, there was prior year expense due to rate change impact on deferred tax assets attributable to the certification by the Chinese government of the High and New Technology Enterprise status of the Company’s China operations, which reduced the tax rate to 15% for the respective entity. These increases were partially offset by prior year tax benefits in Switzerland due to law changes (net of valuation allowance) and in Korea for prior year tax settlements.
Deferred tax assets (liabilities)
The tax effects of temporary differences and tax carryforwards which give rise to future income tax benefits and payables are as follows:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (Dollars in millions) | |||||||||||
| Deferred tax assets: | |||||||||||
| Intangibles and fixed assets | $ | 114 | $ | 112 | |||||||
| Accruals and reserves | 31 | 29 | |||||||||
| Net operating losses and other tax attribute carryforwards | 42 | 34 | |||||||||
| Outside basis differences | 1 | 29 | |||||||||
| Other | 94 | 70 | |||||||||
| Total deferred tax assets | 282 | 274 | |||||||||
| Valuation allowance | (37) | (29) | |||||||||
| Net deferred tax assets | $ | 245 | $ | 245 | |||||||
| Deferred tax liabilities: | |||||||||||
| Outside basis differences | $ | (41) | $ | (18) | |||||||
| Other | (26) | (45) | |||||||||
| Total deferred tax liabilities | (67) | (63) | |||||||||
| Net deferred tax asset | $ | 178 | $ | 182 | |||||||
As of December 31, 2025, the Company had foreign net operating loss carryforwards of approximately $67 million with the majority in the below jurisdictions:
| Jurisdiction | Expiration Period | Net Operating Loss Carryforwards | |||||||||
| (Dollars in millions) | |||||||||||
| Brazil | Indefinite | $ | 54 | ||||||||
| Luxembourg | 2039 | 10 | |||||||||
| Other | Various | 3 | |||||||||
| $ | 67 | ||||||||||
We also have net operating loss carryforwards in certain U.S. state jurisdictions, the tax effect of which is not significant.
We maintain a valuation allowance of $37 million against a portion of total deferred tax assets. In the event we determine that we will not be able to realize our net deferred tax assets in the future, we will reduce such amounts through an increase to tax expense in the period such determination is made. Conversely, if we determine that we will be able to
realize net deferred tax assets in excess of the carrying amounts, we will decrease the recorded valuation allowance through a reduction to tax expense in the period that such determination is made. Our valuation allowance increased $8 million from last year. Our balance sheet presents a deferred tax asset of $210 million and a deferred tax liability of $32 million after considering jurisdictional netting.
The Company does not intend to permanently reinvest the undistributed earnings of our foreign subsidiaries and have recorded a deferred tax liability, mainly consisting of withholding taxes, of $23 million as of December 31, 2025.
The following table summarizes the activity related to the Company’s uncertain tax positions (excluding interest and penalties and related tax attributes):
| December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (Dollars in millions) | |||||||||||||||||
| Change in unrecognized tax benefits: | |||||||||||||||||
| Balance at beginning of year | $ | 48 | $ | 66 | $ | 71 | |||||||||||
| Gross increases related to current period tax positions | 10 | 5 | 3 | ||||||||||||||
| Gross increases related to prior periods tax positions | 7 | 2 | — | ||||||||||||||
| Gross decreases related to prior periods tax positions | — | — | — | ||||||||||||||
| Decrease related to resolutions of audits with tax authorities | — | (6) | — | ||||||||||||||
| Expiration of the statute of limitations for the assessment of taxes | (11) | (17) | (8) | ||||||||||||||
| Foreign currency translation | 1 | (2) | — | ||||||||||||||
| Balance at end of year | $ | 55 | $ | 48 | $ | 66 | |||||||||||
As of December 31, 2025, 2024, and 2023 there were $55 million, $48 million, and $66 million, respectively, of unrecognized tax benefits that, if recognized, would be recorded as a component of tax expense.
Estimated interest and penalties related to uncertain tax benefits are classified as a component of tax expense in the Consolidated Statements of Operations and totaled $4 million of expense, $2 million of benefit, and $5 million of expense for the years ended December 31, 2025, 2024, and 2023, respectively. Accrued interest and penalties were $36 million, $32 million, and $34 million, as of December 31, 2025, 2024, and 2023, respectively.
We are currently under audit in multiple jurisdictions, primarily India for tax years 2022 through 2024 and U.S. for tax years 2018 through 2020. Based on the outcome of these examinations, or as a result of the expiration of statutes of limitations for specific jurisdictions, it is possible that certain unrecognized tax benefits for tax positions taken on previously filed tax returns will significantly change from those recorded as liabilities in our financial statements.
Income Taxes Paid (Net of Refunds Received)
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (Dollars in millions) | |||||||||||||||||
| U.S. Federal | $ | 4 | $ | 15 | $ | 17 | |||||||||||
| U.S. State & Local | 1 | — | 1 | ||||||||||||||
| Foreign | |||||||||||||||||
| Brazil | 7 | — | — | ||||||||||||||
| China | 16 | 20 | 11 | ||||||||||||||
| India | 9 | 10 | 8 | ||||||||||||||
| Japan | 5 | 7 | 3 | ||||||||||||||
| Korea | 2 | (1) | 4 | ||||||||||||||
| Switzerland - Federal | 6 | 5 | 9 | ||||||||||||||
| Switzerland - Cantonal | 4 | 3 | 6 | ||||||||||||||
| Other | 8 | 12 | 12 | ||||||||||||||
| Total Foreign | 57 | 56 | 53 | ||||||||||||||
| Balance at end of year | $ | 62 | $ | 71 | $ | 71 | |||||||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 19, 2026 | Showing above |
| 2024 | Feb 20, 2025 | |
| 2023 | Feb 15, 2024 | |
| 2022 | Feb 14, 2023 | |
| 2021 | Feb 14, 2022 | |
| 2020 | Feb 16, 2021 | |
| 2019 | Feb 27, 2020 | |
| 2018 | Mar 1, 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.