INNOSPEC INC. Income Taxes Disclosure
Note 11. Income Taxes
The sources of income before income taxes were as follows:
(in millions) |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Domestic |
|
$ |
25.9 |
|
|
$ |
90.2 |
|
|
$ |
95.2 |
|
Foreign |
|
|
112.2 |
|
|
|
(49.0 |
) |
|
|
79.2 |
|
|
|
$ |
138.1 |
|
|
$ |
41.2 |
|
|
$ |
174.4 |
|
The components of income tax expense are summarized as follows:
(in millions) |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Current: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
4.5 |
|
|
$ |
16.9 |
|
|
$ |
12.4 |
|
State and local |
|
|
1.7 |
|
|
|
2.9 |
|
|
|
0.2 |
|
Foreign |
|
|
24.3 |
|
|
|
26.2 |
|
|
|
18.6 |
|
|
|
|
30.5 |
|
|
|
46.0 |
|
|
|
31.2 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
(7.7 |
) |
|
|
(4.1 |
) |
|
|
5.2 |
|
State and local |
|
|
(0.3 |
) |
|
|
(0.5 |
) |
|
|
0.3 |
|
Foreign |
|
|
(1.0 |
) |
|
|
(35.8 |
) |
|
|
(1.4 |
) |
|
|
|
(9.0 |
) |
|
|
(40.4 |
) |
|
|
4.1 |
|
Total: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
(3.2 |
) |
|
|
12.8 |
|
|
|
17.6 |
|
State and local |
|
|
1.4 |
|
|
|
2.4 |
|
|
|
0.5 |
|
Foreign |
|
|
23.3 |
|
|
|
(9.6 |
) |
|
|
17.2 |
|
|
|
$ |
21.5 |
|
|
$ |
5.6 |
|
|
$ |
35.3 |
|
The effective tax rate varies from the U.S. federal statutory rate because of the factors indicated below. In considering the items that create variances when compared to the U.S. federal statutory rate, it is worth noting that the percentage impact of a given item in the table below would be higher in 2024 because income before income taxes in 2024 is significantly lower than in 2025 and 2023.
(in millions) |
|
2025 |
|
|
|
|
2024 |
|
|
|
|
2023 |
|
|
|
||||||
|
|
in Dollars |
|
in Percent |
|
|
in Dollars |
|
in Percent |
|
|
in Dollars |
|
in Percent |
|
||||||
U.S. federal statutory tax rate |
|
$ |
29.0 |
|
|
21.0 |
% |
|
$ |
8.7 |
|
|
21.0 |
% |
|
$ |
36.6 |
|
|
21.0 |
% |
State and local income taxes, net of federal income tax effect* |
|
|
1.7 |
|
|
1.2 |
% |
|
|
2.7 |
|
|
6.6 |
% |
|
|
1.0 |
|
|
0.6 |
% |
Foreign tax effects: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Brazil: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Changes in valuation allowance |
|
** |
|
** |
|
|
|
2.7 |
|
|
6.6 |
% |
|
** |
|
** |
|
||||
Adjustment to contingent consideration |
|
|
(3.2 |
) |
|
-2.3 |
% |
|
|
0.7 |
|
|
1.7 |
% |
|
** |
|
** |
|
||
Foreign tax rate differential |
|
** |
|
** |
|
|
** |
|
** |
|
|
|
(1.8 |
) |
|
-1.0 |
% |
||||
Other |
|
|
(1.2 |
) |
|
-0.8 |
% |
|
|
0.8 |
|
|
1.9 |
% |
|
|
0.3 |
|
|
0.2 |
% |
Germany: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Foreign tax rate differential |
|
** |
|
** |
|
|
|
0.7 |
|
|
1.7 |
% |
|
** |
|
** |
|
||||
Other |
|
** |
|
** |
|
|
|
(0.1 |
) |
|
-0.2 |
% |
|
** |
|
** |
|
||||
Italy |
|
** |
|
** |
|
|
|
0.6 |
|
|
1.5 |
% |
|
** |
|
** |
|
||||
U.K.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Foreign tax rate differential |
|
|
2.1 |
|
|
1.5 |
% |
|
|
(3.4 |
) |
|
-8.3 |
% |
|
|
1.3 |
|
|
0.7 |
% |
Foreign currency transactions |
|
** |
|
** |
|
|
** |
|
** |
|
|
|
(2.6 |
) |
|
-1.5 |
% |
||||
Innovation incentives |
|
|
(3.2 |
) |
|
-2.3 |
% |
|
|
(3.2 |
) |
|
-7.8 |
% |
|
|
(1.5 |
) |
|
-0.9 |
% |
Other |
|
|
0.4 |
|
|
0.3 |
% |
|
|
0.4 |
|
|
1.0 |
% |
|
|
0.5 |
|
|
0.3 |
% |
Other foreign jurisdictions |
|
|
2.7 |
|
|
2.0 |
% |
|
|
0.2 |
|
|
0.5 |
% |
|
|
1.7 |
|
|
1.0 |
% |
Effect of cross-border tax laws: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Global intangible low-taxed income, net of foreign tax credit |
|
|
0.8 |
|
|
0.6 |
% |
|
|
4.3 |
|
|
10.4 |
% |
|
|
(0.2 |
) |
|
-0.1 |
% |
Subpart F income, net of foreign tax credit |
|
|
— |
|
|
0.0 |
% |
|
|
1.2 |
|
|
2.9 |
% |
|
|
0.2 |
|
|
0.1 |
% |
Incentive for foreign derived intangible income |
|
|
(0.5 |
) |
|
-0.4 |
% |
|
|
(1.9 |
) |
|
-4.6 |
% |
|
|
(4.5 |
) |
|
-2.6 |
% |
Tax on unremitted foreign earnings |
|
|
2.1 |
|
|
1.5 |
% |
|
|
0.8 |
|
|
1.9 |
% |
|
|
2.4 |
|
|
1.4 |
% |
Other |
|
|
0.1 |
|
|
0.1 |
% |
|
|
0.3 |
|
|
0.7 |
% |
|
|
— |
|
|
0.0 |
% |
Tax credits |
|
|
(0.5 |
) |
|
-0.4 |
% |
|
|
(0.9 |
) |
|
-2.2 |
% |
|
|
(1.0 |
) |
|
-0.6 |
% |
Nontaxable or nondeductible items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Nondeductible officer compensation |
|
** |
|
** |
|
|
|
2.0 |
|
|
4.9 |
% |
|
|
1.8 |
|
|
1.0 |
% |
||
Other |
|
|
0.7 |
|
|
0.5 |
% |
|
|
(0.9 |
) |
|
-2.1 |
% |
|
|
(0.2 |
) |
|
-0.1 |
% |
Changes in unrecognized tax benefits |
|
|
— |
|
|
0.0 |
% |
|
|
(10.1 |
) |
|
-24.5 |
% |
|
|
1.3 |
|
|
0.7 |
% |
Tax impact of internal reorganizations |
|
|
(9.5 |
) |
|
-6.9 |
% |
|
|
— |
|
|
0.0 |
% |
|
|
— |
|
|
0.0 |
% |
|
|
$ |
21.5 |
|
|
15.6 |
% |
|
$ |
5.6 |
|
|
13.6 |
% |
|
$ |
35.3 |
|
|
20.2 |
% |
* State taxes in Texas, Louisiana and Oklahoma made up the majority (greater than 50%) of the tax effect in this category in 2025 (2024 and 2023: Texas, California and Oklahoma).
** The amount of income tax during the year does not meet the required threshold and is included in relevant 'Other' category.
The effective tax rate has been positively impacted in 2025 by the tax impact of internal reorganizations. This item arose due to the allocation of a partnership basis difference which was recognized in 2025, following the finalization of our estimate of the tax impact of the dissolution of the partnership on December 31, 2024. While the change in estimate had no impact on pre-tax income, it has resulted in the recognition of a deferred tax asset of $9.5 million and a credit to net income of $9.5 million for the twelve months ended December 31, 2025.
In addition, the effective tax rate has been positively impacted in 2025 by an adjustment of $15.9 million to the fair value of contingent consideration associated with the acquisition of QGP in Brazil. This adjustment has no impact on the Company’s current or future tax liabilities and therefore impacts on the effective tax rate.
The Company benefits from innovation reliefs in relation to relevant research and development expenditure in certain jurisdictions, notably the U.K. and the U.S., which have a positive impact on the effective tax rate.
The level of foreign-derived intangible income benefit that the Company is entitled to has had a positive impact on the effective tax rate in 2025 and the disclosed prior years, although the benefit has declined in 2025 due to a decrease in U.S. export sales.
The Company is subject to state taxes and local taxes primarily in the U.S. in addition to federal taxes. The effective tax rate in 2025 and the disclosed prior years has been negatively impacted by these taxes.
Cash paid for income taxes (net of refunds) consisted of the following:
(in millions) |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Federal |
|
$ |
26.1 |
|
|
$ |
27.5 |
|
|
$ |
27.5 |
|
State and local |
|
|
3.1 |
|
|
|
1.4 |
|
|
|
4.7 |
|
Foreign: |
|
|
|
|
|
|
|
|
|
|||
Brazil |
|
|
2.9 |
|
|
|
2.9 |
|
|
* |
|
|
Canada |
|
* |
|
|
|
3.7 |
|
|
* |
|
||
Germany |
|
|
3.3 |
|
|
|
4.2 |
|
|
|
7.4 |
|
Italy |
|
|
3.9 |
|
|
|
3.9 |
|
|
* |
|
|
U.K. |
|
|
6.8 |
|
|
|
6.7 |
|
|
|
8.6 |
|
Other Foreign |
|
|
4.9 |
|
|
|
1.4 |
|
|
|
6.1 |
|
|
|
|
21.8 |
|
|
|
22.8 |
|
|
|
22.1 |
|
|
|
$ |
51.0 |
|
|
$ |
51.7 |
|
|
$ |
54.3 |
|
*The amount of income taxes paid during the year does not meet the required threshold and is included in 'Other Foreign'.
Details of deferred tax assets and liabilities are analyzed as follows:
(in millions) |
|
2025 |
|
|
2024 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
||
Stock compensation |
|
$ |
3.3 |
|
|
$ |
3.7 |
|
Net operating loss carry forwards |
|
|
8.2 |
|
|
|
8.8 |
|
Other intangible assets |
|
|
15.6 |
|
|
|
4.8 |
|
Accretion expense |
|
|
3.2 |
|
|
|
3.2 |
|
Restructuring provision |
|
|
1.4 |
|
|
|
1.5 |
|
Employee related liabilities |
|
|
4.6 |
|
|
|
9.2 |
|
Foreign tax credits |
|
|
3.0 |
|
|
|
2.1 |
|
Operating lease liabilities |
|
|
12.9 |
|
|
|
11.1 |
|
Inventory provisions |
|
|
9.4 |
|
|
|
9.0 |
|
Pensions |
|
|
1.2 |
|
|
|
0.5 |
|
Carried forward interest deductions |
|
|
2.7 |
|
|
|
1.4 |
|
Bad debt reserves |
|
|
1.1 |
|
|
|
1.4 |
|
Research and experimental expenditure |
|
|
6.1 |
|
|
|
8.3 |
|
Other |
|
|
5.7 |
|
|
|
3.4 |
|
Subtotal |
|
|
78.4 |
|
|
|
68.4 |
|
Less valuation allowance |
|
|
(2.8 |
) |
|
|
(2.4 |
) |
Total net deferred tax assets |
|
$ |
75.6 |
|
|
$ |
66.0 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
||
Property, plant and equipment |
|
$ |
(27.0 |
) |
|
$ |
(29.5 |
) |
Intangible assets including goodwill |
|
|
(31.2 |
) |
|
|
(31.6 |
) |
Customer relationships |
|
|
(1.0 |
) |
|
|
(1.7 |
) |
Unremitted overseas earnings |
|
|
(7.2 |
) |
|
|
(5.1 |
) |
Right-of-use assets |
|
|
(12.9 |
) |
|
|
(10.7 |
) |
Other |
|
|
(1.8 |
) |
|
|
(1.5 |
) |
Total deferred tax liabilities |
|
$ |
(81.1 |
) |
|
$ |
(80.1 |
) |
Net deferred tax liability |
|
$ |
(5.5 |
) |
|
$ |
(14.1 |
) |
Deferred tax assets |
|
$ |
13.6 |
|
|
$ |
9.4 |
|
Deferred tax liabilities |
|
|
(19.1 |
) |
|
|
(23.5 |
) |
|
|
$ |
(5.5 |
) |
|
$ |
(14.1 |
) |
The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. Available evidence considered in determining the use of deferred tax assets includes, but is not limited to, cumulative losses arising in recent accounting periods, the Company’s estimate of future taxable income and any applicable tax-planning strategies. Based on such evidence, if it is more likely than not that some portion or all of such deferred tax assets will not be realized, a valuation allowance is recorded to reduce the Company’s deferred tax assets. On the basis of this evaluation, as of December 31, 2025, a valuation allowance of $2.8 million has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized. The amount of the deferred tax asset considered realizable, however, could be
adjusted if estimates of future taxable income during the carry forward period are reduced or increased or if other evidence becomes available.
As of December 31, 2025, the Company has approximately $6.8 million of tax-effected foreign net operating loss carryforwards, net of valuation allowance, across three of the Company’s foreign subsidiaries, which can be carried forward indefinitely.
A roll-forward of unrecognized tax benefits and associated accrued interest and penalties is as follows:
(in millions) |
|
Unrecognized |
|
|
Interest |
|
|
Total |
|
|||
Opening balance at January 1, 2023 |
|
$ |
10.2 |
|
|
$ |
3.2 |
|
|
$ |
13.4 |
|
Reductions for tax positions of prior periods |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Additions for tax positions of prior periods |
|
|
0.3 |
|
|
|
1.1 |
|
|
|
1.4 |
|
Closing balance at December 31, 2023 |
|
|
10.5 |
|
|
|
4.3 |
|
|
|
14.8 |
|
Current |
|
|
(1.0 |
) |
|
|
(0.2 |
) |
|
|
(1.2 |
) |
Non-current |
|
$ |
9.5 |
|
|
$ |
4.1 |
|
|
$ |
13.6 |
|
Opening balance at January 1, 2024 |
|
$ |
10.5 |
|
|
$ |
4.3 |
|
|
$ |
14.8 |
|
Reductions for tax positions of prior periods |
|
|
(10.5 |
) |
|
|
(5.1 |
) |
|
|
(15.6 |
) |
Additions for tax positions of prior periods |
|
|
— |
|
|
|
0.8 |
|
|
|
0.8 |
|
Closing balance at December 31, 2024 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Current |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Non-current |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Opening balance at January 1, 2025 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Reductions for tax positions of prior periods |
|
|
— |
|
|
|
|
|
|
— |
|
|
Additions for tax positions of prior periods |
|
|
— |
|
|
|
|
|
|
— |
|
|
Closing balance at December 31, 2025 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Current |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Non-current |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
As at December 31, 2025, the Company has no unrecognized tax benefits.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 18, 2026 | Showing above |
| 2024 | Feb 19, 2025 | |
| 2023 | Feb 14, 2024 | |
| 2022 | Feb 22, 2023 | |
| 2021 | Feb 16, 2022 | |
| 2020 | Feb 17, 2021 | |
| 2019 | Feb 19, 2020 | |
| 2018 | Feb 20, 2019 | |
| 2017 | Feb 15, 2018 | |
| 2016 | Feb 15, 2017 | |
| 2015 | Feb 17, 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.