QUAKER CHEMICAL CORPKWR
QUAKER CHEMICAL CORP Income Taxes Disclosure
Income Taxes
On December 22, 2017, the U.S. government enacted comprehensive tax legislation which we refer to as U.S. Tax Reform. U.S. Tax Reform implemented a new system of taxation for non-U.S. earnings which eliminated U.S. federal income taxes on dividends from certain foreign subsidiaries and imposed a one-time transition tax on the deemed repatriation of undistributed earnings of certain foreign subsidiaries that is payable over eight years. Accordingly, the Company had initially recorded a $15.5 million transition tax liability for U.S. income taxes on undistributed earnings of non-U.S. subsidiaries. As of December 31, 2025, the $15.5 million transition liability has been fully paid. The Company may also be subject to other taxes, such as withholding taxes and dividend distribution taxes, if these undistributed earnings are ultimately remitted to the U.S.
On July 4, 2025, H.R. 1, commonly known as the One Big Beautiful Bill Act (the “OBBB”), was signed into law. The OBBB includes significant changes to the federal corporate tax provisions and extends certain otherwise expiring provisions of the 2017 Tax Cuts and Jobs Act. Among other things, the legislation restores 100% bonus depreciation for eligible property, reinstates expensing for domestic research and experimental expenditures, imposes new limitations on interest expense deductibility, and expands disallowed deductions for certain employee remuneration. The legislation has multiple effective dates, with certain provisions effective in 2025 and other provisions implemented through 2027. The provisions effective in 2025 do not have a material impact to our consolidated financial statements. The Company is continuing to evaluate the potential impacts of the provisions effective in 2026 and 2027.
Taxes on income before equity in net income of associated companies for the years ended December 31, 2025, 2024 and 2023 are as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 9,373 | $ | 15,276 | $ | 12,159 | |||||||||||
| State | 2,106 | 2,395 | 2,938 | ||||||||||||||
| Foreign | 43,556 | 41,662 | 51,930 | ||||||||||||||
| Total | 55,035 | 59,333 | 67,027 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | (11,411) | (4,385) | 518 | ||||||||||||||
| State | (310) | (24) | (163) | ||||||||||||||
| Foreign | (18,707) | (5,624) | (11,797) | ||||||||||||||
| Total | $ | (30,428) | $ | (10,033) | $ | (11,442) | |||||||||||
Taxes on income before equity in net income of associated companies | $ | 24,607 | $ | 49,300 | $ | 55,585 | |||||||||||
The components of income before taxes and equity of associated companies for the years ended December 31, 2025, 2024 and 2023 are as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| U.S. | $ | (11,519) | $ | 17,167 | $ | 14,520 | |||||||||||
| Foreign | 18,548 | 137,891 | 138,604 | ||||||||||||||
| Total | $ | 7,029 | $ | 155,058 | $ | 153,124 | |||||||||||
Total deferred tax assets and liabilities are composed of the following as of December 31, 2025 and 2024:
| 2025 | 2024 | ||||||||||
| Pension and other postretirement benefits | $ | 4,426 | $ | 5,472 | |||||||
| Allowance for credit losses | 2,232 | 1,895 | |||||||||
| Insurance and litigation reserves | 614 | 565 | |||||||||
| Performance incentives | 5,291 | 5,582 | |||||||||
| Equity-based compensation | 3,634 | 2,891 | |||||||||
| Prepaid expense | 458 | 426 | |||||||||
| Operating loss carryforward | 32,065 | 24,702 | |||||||||
| Foreign tax credit and other credits | 23,516 | 19,516 | |||||||||
| Interest | 22,786 | 16,423 | |||||||||
| Restructuring reserves | 2,230 | 158 | |||||||||
| Right-of-use lease assets | 8,790 | 7,629 | |||||||||
| Inventory reserves | 3,596 | 2,423 | |||||||||
| Research and development | 14,036 | 12,608 | |||||||||
| Other | 3,242 | 1,261 | |||||||||
| Total deferred tax assets, gross | 126,916 | 101,551 | |||||||||
| Valuation allowance | (33,376) | (27,993) | |||||||||
| Total deferred tax assets, net | $ | 93,540 | $ | 73,558 | |||||||
| Depreciation | 14,095 | 9,814 | |||||||||
| Intangibles | 185,501 | 170,309 | |||||||||
| Lease liabilities | 9,661 | 8,575 | |||||||||
| Outside basis in equity investment | 4,500 | 6,080 | |||||||||
| Unremitted earnings | 8,469 | 8,392 | |||||||||
| Total deferred tax liabilities | $ | 222,226 | $ | 203,170 | |||||||
| Total net deferred tax liabilities | $ | (128,686) | $ | (129,612) | |||||||
The Company’s net deferred tax assets and liabilities are classified in the Consolidated Balance Sheets as of December 31, 2025 and 2024 as follows:
| 2025 | 2024 | ||||||||||
| Non-current deferred tax assets | $ | 12,128 | $ | 9,216 | |||||||
| Non-current deferred tax liabilities | 140,814 | 138,828 | |||||||||
| Total net deferred tax liabilities | $ | (128,686) | $ | (129,612) | |||||||
As of December 31, 2025, the Company has a deferred tax liability of $8.5 million on certain undistributed foreign earnings, which primarily represents the Company’s estimate of the non-U.S. income taxes the Company will incur to ultimately remit certain earnings to the U.S. Otherwise, it is the Company’s current intention to reinvest its additional undistributed earnings of certain non-U.S. subsidiaries to support working capital needs and certain other growth initiatives outside of the U.S. The amount of such undistributed earnings at December 31, 2025 was approximately $429.2 million. Any tax liability which might result from ultimate remittance of these earnings is expected to be substantially offset by foreign tax credits (“FTCs”) (subject to certain limitations); however, certain withholding taxes could apply. It is currently impractical to estimate any such incremental tax expense.
The Company has $6.0 million of deferred tax assets related to state net operating losses. Management analyzed the expected impact of the reversal of existing taxable temporary differences, considered expiration dates, analyzed current state tax laws, and determined that $1.6 million of state net operating loss carryforwards is expected to be realized as a future benefit. Accordingly, a partial valuation allowance of $4.4 million has been established. These state net operating losses are subject to various carryforward periods of 5 years to 20 years or an indefinite carryforward period. An additional $0.9 million of valuation allowance was established for other net state deferred tax assets.
The Company has $26.6 million of deferred tax assets related to foreign net operating loss carryforwards. A partial valuation allowance of $3.7 million has been established against this amount resulting in a net $22.9 million expected future benefit. These foreign net operating losses are subject to various carryforward periods with the majority having an indefinite carryforward period. An additional partial valuation allowance of $3.7 million has been established against certain other foreign deferred tax assets.
FTCs may be carried forward for 10 years. Management analyzed the expected impact of the utilization of FTCs based on certain assumptions such as projected U.S. taxable income, overall domestic loss recapture, and applicable limitations if any. The Company had an FTCs carry forward of $23.1 million and $19.2 million as of December 31, 2025 and 2024, respectively, with a $20.6 million and $17.2 million valuation allowance as of December 31, 2025 and 2024, respectively, reflecting the amount of credits that are not expected to be utilized before expiration.
The following are the changes in the Company’s deferred tax asset valuation allowance for the years ended December 31, 2025, 2024 and 2023:
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance at January 1, | $ | 27,993 | $ | 24,182 | $ | 11,730 | |||||||||||
| Net charges to income tax expense | $ | 5,281 | $ | 5,693 | $ | 14,393 | |||||||||||
| Release of valuation allowance | $ | (1,228) | $ | (1,882) | $ | (1,941) | |||||||||||
| Purchase accounting adjustments | $ | 1,330 | $ | — | $ | — | |||||||||||
| Balance at December 31, | $ | 33,376 | $ | 27,993 | $ | 24,182 | |||||||||||
Payments for income taxes including withholding taxes, net for the year ended December 31, 2025 are as follows ($ in thousands):
| 2025 | ||||||||
| U.S. Federal | $ | 7,163 | ||||||
U.S. State (1) | 2,090 | |||||||
| Foreign | ||||||||
| Brazil | 11,592 | |||||||
| China | 15,040 | |||||||
| India | 3,422 | |||||||
| Mexico | 9,149 | |||||||
| Other | 11,255 | |||||||
| Total income taxes paid, net | $ | 59,711 | ||||||
(1) During the year ended December 31, 2025, there were no individual state jurisdictions with cash taxes paid that equaled or exceeded 5% of total income taxes paid.
Payments for income taxes including withholding taxes, net for the years ended December 31, 2024 and 2023 was $69.0 million and $68.6 million, respectively.
The following is a reconciliation of income taxes at the Federal statutory rate with income taxes recorded by the Company for the year ended December 31, 2025:
| 2025 | |||||||||||
| Total | % | ||||||||||
| Income tax provision at the Federal statutory tax rate | 1,476 | 21.0 | % | ||||||||
State and local income taxes, net of federal (1) | 1,351 | $— | 19.2 | % | |||||||
| Effect of cross-border tax laws | |||||||||||
| Global Intangible Low-Taxed Income (GILTI), net of FTC's | 2,100 | 29.9 | % | ||||||||
| Foreign-Derived Intangible Income (FDII) | (1,180) | (16.8) | % | ||||||||
| Foreign branch income, net of FTC's | (5,060) | (72.0) | % | ||||||||
| Subpart F income, net of FTC's | 182 | 2.6 | % | ||||||||
| Other Cross-Border Tax | 224 | 3.2 | % | ||||||||
| Tax Credits | |||||||||||
| R&D | (566) | (8.1) | % | ||||||||
| Changes in valuation allowances | 3,480 | 49.5 | % | ||||||||
| Nontaxable or nondeductible items | |||||||||||
| Share-based compensation | 1,642 | 23.4 | % | ||||||||
| Other nontaxable or nondeductible items | 254 | 3.6 | % | ||||||||
| Other adjustments | |||||||||||
| Other | (852) | (12.1) | % | ||||||||
| Change in unrecognized tax benefits | (5,708) | (81.2) | % | ||||||||
| Foreign tax effects: | |||||||||||
| Brazil | |||||||||||
| Statutory income tax rate differential | 2,949 | 42.0 | % | ||||||||
| Other | (198) | (2.8) | % | ||||||||
| China | |||||||||||
| Withholding taxes | 4,100 | 58.3 | % | ||||||||
| R&D deduction | (1,402) | (19.9) | % | ||||||||
| Other | 266 | 3.8 | % | ||||||||
| France | |||||||||||
| Non-deductible impairment | 3,197 | 45.5 | % | ||||||||
| Other | (229) | (3.3) | % | ||||||||
| Germany | |||||||||||
| Non-deductible impairment | 5,257 | 74.8 | % | ||||||||
| Other | (835) | (11.9) | % | ||||||||
| Korea | |||||||||||
| Withholding taxes | 1,760 | 25.0 | % | ||||||||
| Malta | |||||||||||
| Statutory income tax rate differential | (3,166) | (45.0) | % | ||||||||
| Other | 1,009 | 14.4 | % | ||||||||
| Mexico | |||||||||||
| Statutory income tax rate differential | 1,896 | 27.0 | % | ||||||||
| Other | 599 | 8.5 | % | ||||||||
| Netherlands | |||||||||||
| Other | 2,060 | 29.3 | % | ||||||||
| Spain | |||||||||||
| Non-deductible impairment | 1,605 | 22.8 | % | ||||||||
| Other | 141 | 2.0 | % | ||||||||
| United Kingdom | |||||||||||
| Non-deductible impairment | 2,451 | 34.9 | % | ||||||||
| Other | 3 | — | % | ||||||||
| Other foreign jurisdictions | 5,801 | 82.5 | % | ||||||||
| Effective Tax Rate | $ | 24,607 | 350.1 | % | |||||||
(1) During the year ended December 31, 2025, state taxes in Indiana, Pennsylvania, and Michigan comprised greater than 50% of the tax effect in this category.
The following is a reconciliation of income taxes at the Federal statutory rate with income taxes recorded by the Company for the years ended December 31, 2024 and 2023:
| 2024 | 2023 | |||||||||||||
| Income tax provision at the Federal statutory tax rate | $ | 32,562 | $ | 32,156 | ||||||||||
| Unremitted earnings | (30) | 1,211 | ||||||||||||
| Tax law changes / reform | (37) | 47 | ||||||||||||
| U.S. tax on foreign operations | 9,625 | 9,014 | ||||||||||||
| Foreign derived intangible income | (1,336) | (1,147) | ||||||||||||
| Withholding taxes | 8,418 | 11,193 | ||||||||||||
| FTC's | (6,898) | (3,432) | ||||||||||||
| Share-based compensation | 2,345 | 1,814 | ||||||||||||
| Foreign tax rate differential | 1,315 | 4,731 | ||||||||||||
| Research and development credit | (1,902) | (2,000) | ||||||||||||
| Audit settlements | — | 456 | ||||||||||||
| Uncertain tax positions | (2,372) | (598) | ||||||||||||
| State income tax provisions, net | 1,905 | 2,158 | ||||||||||||
| Non-deductible expenses | 341 | 416 | ||||||||||||
| Intercompany transfer of intangible assets | 2,295 | (584) | ||||||||||||
| Goodwill impairment | — | — | ||||||||||||
| Provision to return and other adjustments | 2,655 | (930) | ||||||||||||
| Miscellaneous items, net | 414 | 1,080 | ||||||||||||
| Taxes on income before equity in net income of associated companies | $ | 49,300 | $ | 55,585 | ||||||||||
For the years ended December 31, 2025 and 2024, the Company’s cumulative liability for gross unrecognized tax benefits were $12.4 million and $13.9 million, respectively. For the years ended December 31, 2025 and 2024, the Company had accrued approximately $0.0 million and $0.8 million, respectively, for cumulative penalties and $1.8 million and $2.6 million, respectively, for cumulative interest.
The Company continues to recognize interest and penalties associated with uncertain tax positions as a component of tax expense on income before equity in net income of associated companies in its Consolidated Statements of Operations. The Company recognized a benefit of $0.8 million for penalties and a benefit of $0.8 million for interest (net of expirations and settlements) in its Consolidated Statements of Operations for the year ended December 31, 2025, a benefit of $0.2 million for penalties and a benefit of $0.2 million for interest (net of expirations and settlements) in its Consolidated Statement of Operations for the year ended December 31, 2024, and a benefit of $0.4 million for penalties and an expense of $0.1 million for interest (net of expirations and settlements) in its Consolidated Statement of Operations for the year ended December 31, 2023.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended December 31, 2025, 2024 and 2023, respectively, is as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| Unrecognized tax benefits as of January 1 | $ | 13,949 | $ | 15,659 | $ | 16,340 | |||||||||||
| Decrease in unrecognized tax benefits taken in prior periods | (1,351) | (88) | (147) | ||||||||||||||
| Increase in unrecognized tax benefits taken in current period | 4,011 | 2,684 | 1,799 | ||||||||||||||
| Decrease in unrecognized tax benefits due to lapse of statute of limitations | (4,954) | (3,559) | (2,736) | ||||||||||||||
| Decrease in unrecognized tax benefits due to audit settlements | (506) | — | — | ||||||||||||||
| Increase (decrease) due to foreign exchange rates | 1,230 | (747) | 403 | ||||||||||||||
| Unrecognized tax benefits as of December 31 | $ | 12,379 | $ | 13,949 | $ | 15,659 | |||||||||||
The amount of net unrecognized tax benefits above that, if recognized, would impact the Company’s tax expense and effective tax rate is $4.9 million, $8.3 million and $10.1 million for the years ended December 31, 2025, 2024 and 2023, respectively.
The Company and its subsidiaries are subject to U.S. Federal income tax, as well as the income tax of various state and foreign tax jurisdictions. Tax years that remain subject to examination by major tax jurisdictions are shown in the table below:
| Jurisdiction | Open Years | |||||||
| Brazil | 2020-2025 | |||||||
| China | 2020-2025 | |||||||
| Germany | 2019-2025 | |||||||
| India | 2020-2025 | |||||||
| Italy | 2019-2025 | |||||||
| Mexico | 2020-2025 | |||||||
| Netherlands | 2020-2025 | |||||||
| Spain | 2019-2025 | |||||||
| U.S. Federal and State | 2020-2025 | |||||||
| United Kingdom | 2021-2025 | |||||||
Positions challenged by the taxing authorities may be settled or applied by the Company.
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.