MERCER INTERNATIONAL INC. Income Taxes Disclosure

Note 13. Income Taxes

For the years ended December 31, 2025, 2024 and 2023, the foreign current income tax provision (recovery) was primarily for German entities.

The Company’s effective income tax rate can be affected by many factors, including but not limited to, changes in the mix of earnings in tax jurisdictions with differing statutory rates, changes in corporate structure, changes in the valuation of deferred tax assets and liabilities, the result of audit examinations of previously filed tax returns and changes in tax laws and rates. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.

The Company and/or one or more of its subsidiaries file income tax returns in the U.S., Germany, Canada and Australia. Currently, the Company does not anticipate that the expiration of the statute of limitations or the completion of audits in the next fiscal year will result in liabilities for uncertain income tax positions that are materially different than the amounts accrued or disclosed as of December 31, 2025. However, this could change as tax years are examined by taxing authorities, the timing of which are uncertain at this time. The German tax authorities have completed examinations up to and including the 2021 tax year for all but one German entity which had its examination completed up to and including the 2019 tax year. The Company is generally not subject to U.S. or Canadian income tax examinations for tax years before 2022 and 2021, respectively. The Company believes that it has adequately provided for any reasonably foreseeable outcomes related to its tax audits and that any settlement will not have a material adverse effect on its consolidated results.

The liability in the Consolidated Balance Sheets related to unrecognized tax benefits was $nil as of December 31, 2025 (2024 – $nil). The Company recognizes interest and penalties related to unrecognized tax benefits in “Income tax recovery” in the Consolidated Statements of Operations. During the years ended December 31, 2025, 2024 and 2023, the Company did not record any interest and penalties related to unrecognized tax benefits.

At each reporting period, the Company assesses whether it is more likely than not that the deferred tax assets will be realized, based on the review of all available positive and negative evidence, including future reversals of existing taxable temporary differences, estimates of future taxable income, past operating results and prudent and feasible tax planning strategies. The carrying value of the Company’s deferred tax assets reflects its expected ability to generate sufficient future taxable income in certain tax jurisdictions to utilize these deferred income tax benefits. Significant judgment is required when evaluating this positive and negative evidence.

As of December 31, 2025, the Company has a full valuation allowance against the net deferred tax assets of its U.S., Canadian and certain German entities.

The Company has not recognized a tax liability on the undistributed earnings of its foreign subsidiaries as of December 31, 2025 because these earnings are expected to be permanently reinvested outside the U.S. or repatriated without incurring a tax liability.

Global Corporate Minimum Tax Rate

In 2021, the Organisation for Economic Co-operation and Development proposed a global corporate minimum tax rate of 15% (the “Pillar Two” rules). As of December 31, 2025, Germany, Canada and Australia have enacted laws to conform with the Pillar Two rules, but the U.S. has not. The enacted Pillar Two rules have not had a material impact to the Company's effective tax rates and tax liabilities as of December 31, 2025. The Company will continue to monitor the impact of proposed and enacted legislative changes in the geographic regions in which we operate.