INTERNATIONAL FLAVORS & FRAGRANCES INCIFF
INTERNATIONAL FLAVORS & FRAGRANCES INC Income Taxes Disclosure
INCOME TAXES
_______________________
Earnings before income taxes consisted of the following:
| December 31, | |||||||||||||||||
| (DOLLARS IN MILLIONS) | 2025 | 2024 | 2023 | ||||||||||||||
| U.S. income (loss) before taxes | $ | (1,421) | $ | (810) | $ | (1,777) | |||||||||||
| Foreign income (loss) before taxes | 1,009 | 1,118 | (741) | ||||||||||||||
| Total income (loss) before taxes | $ | (412) | $ | 308 | $ | (2,518) | |||||||||||
The income tax provision consisted of the following:
| December 31, | |||||||||||||||||
| (DOLLARS IN MILLIONS) | 2025 | 2024 | 2023 | ||||||||||||||
| Current tax provision | |||||||||||||||||
| Federal | $ | (178) | $ | (44) | $ | 47 | |||||||||||
| State and local | 4 | 9 | — | ||||||||||||||
| Foreign | 391 | 399 | 393 | ||||||||||||||
| Total current tax provision | 217 | 364 | 440 | ||||||||||||||
| Deferred tax provision | |||||||||||||||||
| Federal | (144) | (203) | (161) | ||||||||||||||
| State and local | (16) | (28) | 32 | ||||||||||||||
| Foreign | (110) | (92) | (242) | ||||||||||||||
| Total deferred tax benefit | (270) | (323) | (371) | ||||||||||||||
| Total (benefit) provision for income taxes | $ | (53) | $ | 41 | $ | 69 | |||||||||||
Effective Tax Rate Reconciliation
As further described in Note 1, Summary of Significant Accounting Policies, the Company has adopted 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 tax rate of 21% to the Company’s effective tax rate for the year ended December 31, 2025 in accordance with the guidance in ASU 2023-09:
| Year Ended December 31, 2025 | |||||||||||
| Total | % | ||||||||||
| Earnings from continuing operations, before income tax expense | $ | (412) | |||||||||
| U.S. Federal Statutory Tax Rate | (87) | 21.1 | % | ||||||||
| United States | |||||||||||
State and Local Income Taxes (a) | (13) | 3.2 | % | ||||||||
| Federal | |||||||||||
| Effect of Cross-Border Tax Laws | |||||||||||
| Global intangible low taxed income | 36 | (8.7) | % | ||||||||
| Other | (3) | 0.7 | % | ||||||||
| Tax Credits | |||||||||||
| Research and development credit | (20) | 4.8 | % | ||||||||
| Changes in Valuation Allowances | 22 | (5.3) | % | ||||||||
| Nontaxable or Nondeductible Items | |||||||||||
| Non-taxable income | 28 | (6.8) | % | ||||||||
| Tax effects of non-deductible goodwill impairment | 236 | (57.3) | % | ||||||||
| Tax impact on gain on business divestitures | 115 | (27.9) | % | ||||||||
| Other | 4 | (1.0) | % | ||||||||
| Other Adjustments | |||||||||||
| Entity Realignment - One-time impact | (348) | 84.4 | % | ||||||||
| Other | (11) | 2.7 | % | ||||||||
| Foreign Tax Effects | |||||||||||
| Brazil | 10 | (2.4) | % | ||||||||
| China | 22 | (5.3) | % | ||||||||
| Cyprus | |||||||||||
| Effect of rates different than statutory | (13) | 3.2 | % | ||||||||
| Enactment of new tax laws | (28) | 6.8 | % | ||||||||
| Notional interest deduction | (12) | 2.9 | % | ||||||||
| Other | (1) | 0.2 | % | ||||||||
| Denmark | |||||||||||
| Non-taxable income | (28) | 6.8 | % | ||||||||
| Other | 15 | (3.6) | % | ||||||||
| Germany | |||||||||||
| Goodwill and intangibles | (16) | 3.9 | % | ||||||||
| Luxembourg | |||||||||||
| Changes in valuation allowances | (27) | 6.5 | % | ||||||||
| Other | 28 | (6.8) | % | ||||||||
| Netherlands | |||||||||||
| Tax benefit from supply chain optimization | (13) | 3.2 | % | ||||||||
| Other | 10 | (2.4) | % | ||||||||
| Singapore | (11) | 2.6 | % | ||||||||
| Other Foreign Jurisdictions | 63 | (15.3) | % | ||||||||
| Changes in Unrecognized Tax Benefits | (11) | 2.7 | % | ||||||||
| Income Tax Expense | $ | (53) | 12.9 | % | |||||||
(a)State taxes in Illinois, Minnesota and Michigan made up the majority of the tax effect of this category.
The Company has elected to treat global intangible low-taxed income (“GILTI”) as a current period cost if and when incurred. This tax position resulted in a net income tax expense of approximately $215 million for the year ended December 31, 2025, offset in part by foreign tax credits of approximately $178 million.
The following table is a reconciliation between the U.S. federal statutory income tax rate of 21% to the Company’s effective tax rate for the years ended December 31, 2024 and 2023 in accordance with the guidance prior to the adoption of 2023-09.
| December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Statutory tax rate | 21.0 | % | 21.0 | % | ||||||||||
| Tax effect of non-deductible goodwill impairment | — | (20.4) | ||||||||||||
| Difference in effective tax rate on foreign earnings and remittances | 34.7 | (1.1) | ||||||||||||
| Tax benefit from supply chain optimization | (4.4) | 0.5 | ||||||||||||
| Unrecognized tax benefit, net of reversals | 6.5 | (0.8) | ||||||||||||
Tax impact on gain on business disposals(1) | (21.0) | (3.7) | ||||||||||||
Deferred taxes on deemed repatriation(2) | 0.3 | 0.5 | ||||||||||||
| Global intangible low-taxed income | 10.8 | (0.4) | ||||||||||||
| U.S. foreign tax credit - general limitation | (8.7) | 0.2 | ||||||||||||
| Research and development credit | (7.3) | 0.5 | ||||||||||||
State and local taxes including rate changes(3) | (6.4) | (1.7) | ||||||||||||
| Tax impact on internal asset transfer | (9.5) | 5.3 | ||||||||||||
| Other, net | (2.7) | (2.6) | ||||||||||||
| Effective tax rate | 13.3 | % | (2.7) | % | ||||||||||
(1)For 2024 the effective tax rate reflects the recording of the tax effects of the divestiture of the Cosmetic Ingredients business.
(2)For 2023 and 2024 the rate includes the establishment of the held for sale deferred tax liabilities due to a change in assertion.
(3)For 2023 and 2024 the rate includes rate change impacts related to the remeasurement of the state tax rate on deferred taxes.
Deferred Taxes
The deferred tax assets and liabilities, shown before jurisdictional netting, consisted of the following amounts:
| December 31, | |||||||||||
| (DOLLARS IN MILLIONS) | 2025 | 2024 | |||||||||
| Employee and retiree benefits | $ | 62 | $ | 90 | |||||||
| Credit and net operating loss carryforwards | 359 | 294 | |||||||||
| Amortizable research and development expenses | 167 | 154 | |||||||||
| Interest limitation | 205 | 226 | |||||||||
| Inventory | 33 | 29 | |||||||||
| Lease obligations | 146 | 143 | |||||||||
| Other, net | 125 | 101 | |||||||||
| Gross deferred tax assets | 1,097 | 1,037 | |||||||||
| Property, plant and equipment, net | (203) | (195) | |||||||||
Intangible assets(1) | (1,241) | (1,529) | |||||||||
| Right-of-use assets | (138) | (132) | |||||||||
| Deferred taxes on deemed repatriation | (155) | (154) | |||||||||
| Other, net | — | (5) | |||||||||
| Gross deferred tax liabilities | (1,737) | (2,015) | |||||||||
| Valuation allowance | (454) | (376) | |||||||||
| Total net deferred tax liabilities | $ | (1,094) | $ | (1,354) | |||||||
_______________________
(1)Includes deferred taxes on intangible assets owned by a fully consolidated partnership.
Net operating loss carryforwards were approximately $334 million and $267 million as of December 31, 2025 and 2024, respectively. If unused, approximately $103 million will expire between 2026 and 2045. The remainder, totaling approximately $231 million, may be carried forward indefinitely. Tax credit carryforwards were approximately $21 million as of both December 31, 2025 and 2024. If unused, the $21 million will expire between 2026 and 2045.
Of the deferred tax assets at December 31, 2025, the Company considers it unlikely that a portion of the tax benefit will be realized. Accordingly, a valuation allowance of approximately $454 million has been established against these deferred tax assets.
Uncertain Tax Positions
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| December 31, | |||||||||||||||||
| (DOLLARS IN MILLIONS) | 2025 | 2024 | 2023 | ||||||||||||||
| Balance of unrecognized tax benefits at beginning of year | $ | 270 | $ | 215 | $ | 144 | |||||||||||
| Gross amount of increases in unrecognized tax benefits as a result of positions taken during a prior year | 41 | 65 | 61 | ||||||||||||||
| Gross amount of decreases in unrecognized tax benefits as a result of positions taken during a prior year | (21) | (12) | — | ||||||||||||||
| Gross amount of increases in unrecognized tax benefits as a result of positions taken during the current year | 9 | 15 | 19 | ||||||||||||||
| The amounts of decreases in unrecognized benefits relating to settlements with taxing authorities | (117) | (5) | (3) | ||||||||||||||
| Reduction in unrecognized tax benefits due to the lapse of applicable statute of limitation | (12) | (8) | (6) | ||||||||||||||
| Balance of unrecognized tax benefits at end of year | $ | 170 | $ | 270 | $ | 215 | |||||||||||
As of December 31, 2025, 2024 and 2023, there were approximately $151 million, $270 million and $215 million, respectively, of unrecognized tax benefits recorded to Other liabilities. As of December 31, 2025, there were approximately $19 million recorded to Other current liabilities. There were no amounts recorded to Other current liabilities for 2024 and 2023. If these unrecognized tax benefits were recognized, all the benefits and related interest and penalties would be recorded as a benefit to income tax expense.
The Company decreased its liabilities for interest and penalties by approximately $26 million, net, for the year ended December 31, 2025. The Company increased its liabilities for interest and penalties by approximately $16 million, net, and increased its liabilities for interest and penalties by approximately $14 million, net, for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2025, 2024 and 2023, the Company had accrued approximately $33 million, $63 million and $49 million respectively, of interest and penalties classified as Other liabilities. As of December 31, 2025, the Company has accrued approximately $4 million of interest and penalties classified as other current liabilities.
As of December 31, 2025, the Company’s aggregate provision for unrecognized tax benefits, including interest and penalties, was approximately $208 million associated with various tax positions principally asserted in foreign jurisdictions.
The following table is a reconciliation of the Company’s tax payments and refunds for the year ended December 31, 2025:
| December 31, | |||||
| (DOLLARS IN MILLIONS) | 2025 | ||||
| Federal | $ | 27 | |||
| State and local | 10 | ||||
| Foreign | 292 | ||||
| Total | $ | 329 | |||
Income taxes paid (net of refunds) exceeded 5 percent of total income taxes paid (net of refunds) in the following jurisdictions:
| December 31, | |||||
| (DOLLARS IN MILLIONS) | 2025 | ||||
| Brazil | $ | 18 | |||
| China | 27 | ||||
| France | 33 | ||||
| Germany | 20 | ||||
| Mexico | 19 | ||||
| Netherlands | 54 | ||||
| Total | $ | 171 | |||
Other
During the year ended December 31, 2025, the Company recorded an income tax benefit associated with the legal entity realignment project of $360 million. The legal entity realignment project is a phased restructuring initiative involving certain of the Company’s U.S. and foreign legal entities. To determine the amount of the income tax benefit recorded, first management estimated the fair value of the relevant legal entities using the discounted cash flow method or the net asset value method and then analyzed the relevant tax laws and regulations in assessing the tax consequences of the steps within the realignment project, including obtaining opinions from third-party tax and legal advisors. Under the discounted cash flow method, management used a rate of return that reflects the relative risk of the projected future cash flows of each legal entity, as well as a terminal value. Estimates and assumptions include revenue growth rates, gross margins, adjusted operating EBIT margins, terminal growth rates, and discount rates.
Tax benefits credited to Shareholders’ equity were not material for the years ended December 31, 2025, 2024 and 2023 associated with stock option exercises and purchased restricted stock unit dividends.
The Company regularly repatriates earnings from non-U.S. subsidiaries. As the Company repatriates these funds to the U.S., there will be required income taxes payable in certain U.S. states and applicable foreign withholding taxes during the period when such repatriation occurs. Accordingly, as of December 31, 2025, the Company had a deferred tax liability of approximately $155 million for the effect of repatriating the funds to the U.S., attributable to various non-U.S. subsidiaries.
There is no deferred tax liability associated with non-U.S. subsidiaries where the Company intends to indefinitely reinvest the earnings to fund local operations and/or capital projects.
The Company has ongoing income tax audits and legal proceedings which are at various stages of administrative or judicial review. In addition, the Company has other ongoing tax audits and legal proceedings that relate to indirect taxes, such as value-added taxes, capital tax, sales and use and property taxes, which are discussed in Note 21.
The Company also has several other tax audits in process and has open tax years with various taxing jurisdictions that range primarily from 2011 to 2024.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2023 | Feb 28, 2024 | |
| 2022 | Feb 27, 2023 | |
| 2021 | Feb 28, 2022 | |
| 2020 | Feb 22, 2021 | |
| 2019 | Mar 3, 2020 | |
| 2018 | Feb 26, 2019 | |
| 2017 | Feb 27, 2018 | |
| 2016 | Feb 28, 2017 | |
| 2015 | Mar 1, 2016 | |
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.