KRONOS WORLDWIDE INC Income Taxes Disclosure

Note 12 – Income taxes:

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The amount shown in the preceding table of our income tax rate reconciliation for incremental tax expense (benefit) on earnings (losses) of  subsidiary represents current and deferred U.S. income taxes (or income tax benefits) attributable to one of our non-U.S. subsidiaries which is treated as a dual resident for U.S. income tax purposes, to the extent the current-year income (losses) of such subsidiary is subject to U.S. income tax under the U.S. dual-resident provisions of the Internal Revenue Code.

The components of our net deferred income taxes at December 31, 2024 and 2025 are summarized in the following table.

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We periodically review our deferred tax assets (“DTA”) to determine if a valuation allowance is required. At December 31, 2025, we have German corporate and trade net operating loss (“NOL”) carryforwards of $510.8 million (DTA of $57.2 million) and $46.3 million (DTA of $5.0 million), respectively; Belgian corporate NOL carryforwards of $109.0 million (DTA of $27.2 million); U.S. federal NOL carryforwards of $38.0 million (DTA of $8.0 million); and Canadian corporate and provincial NOL carryforwards of $30.9 million (DTA of $4.6 million) and $33.5 million (DTA of $3.8 million), respectively. With regards to our Belgian DTA, we did not have sufficient positive evidence to overcome the significant negative evidence of having twelve quarters of cumulative losses. Accordingly, at December 31, 2024, we concluded that we were required to recognize a non-cash deferred income tax asset valuation allowance of $8.2 million under the more-likely-than-not recognition criteria with respect to our Belgian DTA. During 2025, we recognized an aggregate $8.6 million non-cash tax expense as the result of a net increase in such deferred income tax asset valuation allowance with respect to the additional losses recognized by our Belgian operations during 2025. At December 31, 2025, we have concluded no valuation allowance is required to be recognized for our German, U.S., and Canadian DTAs principally because such carryforwards have lengthy carryforward periods (the German and U.S. carryforwards may be carried forward indefinitely) and we currently expect to utilize the remainder of such carryforwards over the long term.  Although prior to the complete utilization of such carryforwards, if we were to generate additional losses in our German, U.S., or Canadian operations for an extended period of time, or if applicable laws were to change such that the carryforward periods were more limited, it is possible that we might conclude the benefit of such carryforwards would no longer meet the more-likely-than-not recognition criteria, at which point we would be required to recognize a valuation allowance against some or all of the then-remaining tax benefit associated with the carryforwards.  

The 2017 Tax Act limited our business interest expense to the sum of our business interest income and 30% of our adjusted taxable income as defined in the Tax Act. Any business interest expense disallowed as a deduction as a result of the limitation may be carried forward indefinitely. At December 31, 2024 and December 31, 2025, we recorded a DTA of $13.3 million and $21.4 million, respectively, for the carryforwards associated with the nondeductible portion of our interest expense and have concluded we are required to recognize a valuation allowance for such DTA under the more-likely-than-not recognition criteria. During 2025, we recognized a non-cash deferred income tax expense of $9.2 million with respect to the valuation allowance recorded on our additional interest expense carryforwards.

For German tax purposes, our deductible interest expense is similarly limited. Our net business interest expense is limited to 30% of German taxable EBITDA and any business interest expense disallowed as a result of the limitation may be carried forward indefinitely. Prior to 2025 our interest deductions were not limited under this measure, however,

at December 31, 2025, we recorded DTAs of $4.3 million and $4.4 million for the carryforwards associated with the nondeductible portion of our interest expense for German federal and trade tax purposes, respectively. We have concluded we are required to recognize a valuation allowance for such DTAs under the more-likely-than-not recognition criteria.  During 2025 we recognized a non-cash deferred income tax expense of $8.5 million with respect to the valuation allowance recorded against such carryforwards.

Prior to the enactment of the 2017 Tax Act, the undistributed earnings of our European subsidiaries were deemed to be permanently reinvested (we had not made a similar determination with respect to the undistributed earnings of our Canadian subsidiary). Pursuant to the repatriation tax provisions of the 2017 Tax Act which imposed a one-time repatriation tax on post-1986 undistributed earnings, we recognized current income tax expense of $74.5 million and elected to pay such tax in annual installments over an eight-year period. We made our final installment payment of $18.6 million in 2025.

On December 10, 2024, the Department of the Treasury and the Internal Revenue Service released final currency regulations under §987 and related rules (the “2024 Final Regulations”). The 2024 Final Regulations generally apply to tax years beginning after December 31, 2024, and include transition rules that require us to compute a pretransition gain or loss for currency translation related to the operations, assets and liabilities of our non-U.S. qualified business units. Pursuant to the 2024 Final Regulations, we recorded a pretransition gain of $77.1 million and, accordingly, our income tax expense in 2024 includes a non-cash deferred income tax expense of $16.5 million recognized in the fourth quarter. We have elected to amortize such gain into taxable income over a ten-year period beginning in 2025, and accordingly, in 2025 we recorded a current tax expense of $1.6 million as a result of such amortization.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law in the United States. The OBBBA, among other provisions, provides for bonus depreciation of qualified property, permanently modifies the interest expense deduction to use an adjusted taxable income based on a calculation similar to EBITDA and other computational changes, and makes changes to the international tax framework. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The OBBBA did not have a material impact on our 2025 Consolidated Financial Statements, and we are in the process of evaluating the impact to future years as additional provisions take effect.

On July 18, 2025, Germany enacted legislation which includes, among other provisions, an additional depreciation allowance for certain fixed assets, improvements to the research and development tax allowance and, starting in 2028, a reduction of the 15% corporate tax rate by one percentage point in each of five years until the tax rate reaches 10% in 2032. We recorded a non-cash deferred tax expense of $19.3 million in the third quarter to reduce our net German deferred tax asset as a result of the reduction of the German corporate tax rate.  

Tax authorities are examining certain of our U.S. and non-U.S. tax returns and may propose tax deficiencies, including penalties and interest. Because of the inherent uncertainties involved in settlement initiatives and court and tax proceedings, we cannot guarantee that these tax matters, if any, will be resolved in our favor, and therefore our potential exposure, if any, is also uncertain. We believe we have adequate accruals for additional taxes and related interest expense which could ultimately result from tax examinations. We believe the ultimate disposition of tax examinations should not have a material adverse effect on our consolidated financial position, results of operations or liquidity.

We accrue interest and penalties on our UTPs as a component of our provision for income taxes. Interest and penalties accrued during 2023, 2024 and 2025 were not material.

The following table shows the changes in the amount of our UTPs (exclusive of the effect of interest and penalties discussed above) during 2023, 2024 and 2025:

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At December 31, 2025, all of our uncertain tax benefits are classified as a component of our noncurrent deferred tax asset. If our UTP at December 31, 2025 was recognized, there would be no net impact to our effective income tax rate.

We and Contran file income tax returns in U.S. federal and various state and local jurisdictions. We also file income tax returns in various non-U.S. jurisdictions, principally in Germany, Canada, Belgium and Norway. Our U.S. income tax returns prior to 2022 are generally considered closed to examination by applicable tax authorities. Our non-U.S. income tax returns are generally considered closed to examination for years prior to 2021 for Germany and Belgium and 2020 for Canada and Norway although certain periods may be extended if currently under examination or for the review of cross-border transactions.

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The following table shows our net tax payments (refunds) disaggregated by taxing jurisdiction made in 2023, 2024, and 2025.

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