Organon & Co.OGN
Organon & Co. Income Taxes Disclosure
Taxes on Income
The following table presents the reconciliation of the federal statutory rate to the actual effective rate by percent per the updated requirements of ASU 2023-09:
| Year Ended December 31, | |||||||||||
| 2025 | |||||||||||
| ($ in millions) | Amount | Tax Rate | |||||||||
| U.S. Federal Statutory Tax Rate | $ | 89 | 21.0 | % | |||||||
| Foreign Tax Effects | |||||||||||
| Switzerland | |||||||||||
| Statutory tax rate difference between Switzerland and United States | (72) | (17.0) | |||||||||
| Other | (3) | (0.6) | |||||||||
| Netherlands | |||||||||||
| Statutory tax rate difference between Netherlands and United States | 22 | 5.2 | |||||||||
| Innovation incentive benefit | (51) | (12.1) | |||||||||
| Domestic minimum top-up tax | 8 | 2.0 | |||||||||
| Other | (1) | (0.2) | |||||||||
| Singapore | |||||||||||
| Statutory tax rate difference between Singapore and United States | 2 | 0.5 | |||||||||
| Nondeductible expense | 12 | 2.8 | |||||||||
| Other | (1) | (0.2) | |||||||||
| Other Foreign Jurisdictions | 17 | 3.9 | |||||||||
| Effect of Cross-Border Tax Laws | |||||||||||
| Global intangible low-taxed income | 62 | 14.5 | |||||||||
| Subpart F Income | 7 | 1.7 | |||||||||
| Other | 3 | 0.6 | |||||||||
| Tax Credits | (3) | (0.8) | |||||||||
| Changes in Valuation Allowances | 44 | 10.4 | |||||||||
| Nontaxable or Nondeductible Items | |||||||||||
| Goodwill Impairment | 63 | 14.8 | |||||||||
| Contingent Consideration | (9) | (2.0) | |||||||||
| Other | 7 | 1.7 | |||||||||
| Changes in Unrecognized Tax Benefits | 45 | 10.6 | |||||||||
| Other Adjustments | |||||||||||
| Tax amortization benefit | (25) | (6.0) | |||||||||
Investment basis difference on the sale of the Jada System | 20 | 4.6 | |||||||||
| Other | 2 | 0.6 | |||||||||
| Effective Tax Rate | $ | 238 | 56.0 | % | |||||||
Prior to the adoption of ASU 2023-09, the effective income tax rate differs from the statutory federal income tax rate as follows:
| Year Ended December 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| ($ in millions) | Amount | Tax Rate | Amount | Tax Rate | |||||||||||||||||||
U.S. statutory rate applied to income before taxes | $ | 169 | 21.0 | % | $ | 141 | 21.0 | % | |||||||||||||||
| Differential arising from: | |||||||||||||||||||||||
| Foreign earnings | (79) | (9.7) | (91) | (13.6) | |||||||||||||||||||
| Tax settlements | (14) | (1.8) | (13) | (1.9) | |||||||||||||||||||
Amortization of intangible assets | — | — | (686) | (102.0) | |||||||||||||||||||
| State taxes | — | — | (5) | (0.8) | |||||||||||||||||||
| Global Intangible Low-Taxed Income | 62 | 7.7 | 54 | 8.0 | |||||||||||||||||||
| Interest expense disallowance | 11 | 1.3 | 46 | 6.8 | |||||||||||||||||||
| Valuation allowance | (208) | (25.8) | 208 | 30.9 | |||||||||||||||||||
| Other | 2 | 0.2 | (4) | (0.6) | |||||||||||||||||||
| $ | (57) | (7.1) | % | $ | (350) | (52.2) | % | ||||||||||||||||
As a result of the Tax Cuts and Jobs Act (“TCJA”), the Company has made a determination it is no longer indefinitely reinvested with respect to a majority of its previously taxed undistributed earnings from foreign subsidiaries and provided for a deferred tax liability for withholding taxes due upon future remittances, net of certain foreign income tax credits. As of December 31, 2025 and 2023, the deferred tax balance was $2 million and $4 million, respectively. As of December 31, 2024, there was no deferred tax balance.
The tax effects of foreign earnings in the tax rate reconciliation above primarily reflect the effects of operations in jurisdictions with different tax rates than the United States thereby yielding a favorable impact on the effective tax rate compared with the U.S. statutory rate of 21%. The favorable impact is primarily attributable to a reduced tax rate arrangement that was agreed to in Switzerland for an active legal entity
The effective income tax rates were 56.0%, (7.1)% and (52.2)% for 2025, 2024 and 2023, respectively. These effective income tax rates reflect the beneficial impact of foreign earnings, offset by the impact of U.S. inclusions under the Global Intangible Low-Taxed Income regime and a valuation allowance recorded against non-deductible U.S. interest expense.
The 2025 effective tax rate was driven higher by a non-deductible goodwill impairment and an investment basis difference on the sale of the Jada System, offset by the favorable impact of a tax amortization benefit. In the third quarter of 2024, the Swiss tax authority confirmed to the Company the applicable useful life of an existing tax asset. As a result, the Company has now concluded it is more likely than not it will utilize the entirety of the tax asset. As such, the Company released a $210 million related valuation allowance. In the fourth quarter of 2023, $476 million tax benefit was recorded, comprised of a gross benefit of $686 million, net of a $210 million valuation allowance, resulting from the termination of a tax arrangement in Switzerland.
Income before taxes consisted of:
| Year Ended December 31, | |||||||||||||||||
| ($ in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Domestic | $ | (793) | $ | (479) | $ | (554) | |||||||||||
| Foreign | 1,218 | 1,286 | 1,227 | ||||||||||||||
| $ | 425 | $ | 807 | $ | 673 | ||||||||||||
Taxes on income consisted of:
| Year Ended December 31, | |||||||||||||||||
| ($ in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Current provision | |||||||||||||||||
| Federal | $ | 32 | $ | 32 | $ | 47 | |||||||||||
| Foreign | 143 | 71 | 87 | ||||||||||||||
| State | — | — | 1 | ||||||||||||||
| $ | 175 | $ | 103 | $ | 135 | ||||||||||||
| Deferred provision | |||||||||||||||||
| Federal | $ | 19 | $ | (58) | $ | (52) | |||||||||||
| Foreign | 45 | (102) | (428) | ||||||||||||||
| State | (1) | — | (5) | ||||||||||||||
| $ | 63 | $ | (160) | $ | (485) | ||||||||||||
| $ | 238 | $ | (57) | $ | (350) | ||||||||||||
Deferred income taxes at December 31 consisted of:
| December 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| ($ in millions) | Assets | Liabilities | Assets | Liabilities | |||||||||||||||||||
| Product intangibles and licenses | $ | 862 | $ | — | $ | 841 | $ | — | |||||||||||||||
| Inventory related | — | 22 | — | 18 | |||||||||||||||||||
| Reserves and allowances | 53 | — | 43 | — | |||||||||||||||||||
| Accrued expenses | 9 | — | 6 | — | |||||||||||||||||||
| Accelerated depreciation | — | 51 | — | 34 | |||||||||||||||||||
| Unremitted foreign earnings | — | 8 | — | 5 | |||||||||||||||||||
| Right of use asset | 31 | — | 33 | — | |||||||||||||||||||
| Lease liability | — | 31 | — | 33 | |||||||||||||||||||
| Interest expense limitation carryforward | 136 | — | 102 | — | |||||||||||||||||||
| Compensation related | 15 | — | 20 | — | |||||||||||||||||||
| Hedging | 7 | — | — | 74 | |||||||||||||||||||
| Outside basis difference | — | 20 | — | — | |||||||||||||||||||
| Net operating losses and other tax credit carryforwards | 229 | — | 224 | — | |||||||||||||||||||
| Other | 28 | — | 28 | — | |||||||||||||||||||
| Subtotal | $ | 1,370 | $ | 132 | $ | 1,297 | $ | 164 | |||||||||||||||
| Valuation allowance | (310) | — | (261) | — | |||||||||||||||||||
| Total deferred taxes | $ | 1,060 | $ | 132 | $ | 1,036 | $ | 164 | |||||||||||||||
| Net deferred income taxes | $ | 928 | $ | 872 | |||||||||||||||||||
| Recognized as: | |||||||||||||||||||||||
| Other Assets | $ | 985 | $ | 946 | |||||||||||||||||||
| Deferred Income Taxes | $ | 57 | $ | 74 | |||||||||||||||||||
As of December 31, 2025, the Company had U.S. federal and state tax credit carryforwards of $16 million, which will expire at various times through 2040. The Company has state net operating loss carryforwards of $48 million which will expire at various times through 2045 and foreign net operating loss carryforwards of $1.2 billion, which will expire at various times through 2032. The Company also has state and foreign loss carryforwards of $164 million that have no expiration.
A reconciliation of the beginning and ending amount of the valuation allowance is as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Beginning balance | $ | (261) | $ | (309) | $ | (52) | |||||||||||
| Additions charged to expense | (59) | (24) | (257) | ||||||||||||||
| Reductions charged to expense | 11 | 211 | — | ||||||||||||||
| Foreign currency translation | (1) | 8 | — | ||||||||||||||
| Acquisition related | — | (147) | — | ||||||||||||||
| Ending balance | $ | (310) | $ | (261) | $ | (309) | |||||||||||
The Company has recognized $229 million and $224 million of deferred taxes on net operating loss (“NOL”) carryforwards in multiple jurisdictions as of December 31, 2025 and 2024, respectively. Valuation allowances of $310 million have been established on $170 million of foreign deferred tax assets and $140 million of U.S. deferred tax assets. The additions charged to expense are related to the U.S. disallowed interest expense carryforward. The reductions charged to expense of $11 million is primarily due to the $11 million release of a valuation allowance established on net operating losses, which expired in 2025. The remaining $1 million change is related to currency translation on certain non-US valuation allowances whose functional currencies are not the US dollar.
Income taxes paid consist of:
| Year Ended December 31, | |||||
| ($ in millions) | 2025 | ||||
| Federal | $ | 10 | |||
| State | — | ||||
| Foreign | |||||
| Netherlands | 146 | ||||
| Switzerland | 47 | ||||
| Canada | 21 | ||||
| Other | $ | 63 | |||
| Income Taxes Paid | $ | 287 | |||
Income taxes paid in 2024 and 2023, $293 million and $135 million, respectively.
As of December 31, 2025 and 2024, the Company deferred the income tax consequences resulting from intra-entity transfers of inventory totaling $585 million and $509 million, respectively. These amounts are reflected in Other current assets.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| Year Ended December 31, | |||||||||||||||||
| ($ in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Balance January 1 | $ | 121 | $ | 115 | $ | 93 | |||||||||||
| Additions related to current year tax positions | 34 | 31 | 32 | ||||||||||||||
| Additions related to prior year tax positions | 5 | 7 | 7 | ||||||||||||||
Reductions for tax positions of prior years | — | (5) | (8) | ||||||||||||||
Settlements | — | (27) | (7) | ||||||||||||||
| Lapse of statute of limitations | — | — | (2) | ||||||||||||||
| Balance December 31 | $ | 160 | $ | 121 | $ | 115 | |||||||||||
If the Company were to recognize the unrecognized tax benefits of $160 million, at December 31, 2025, the income tax provision would reflect a favorable net impact of $160 million.
In 2024 and 2023, foreign tax authorities concluded their examinations of certain foreign income tax returns. As a result, the Company reflected a payment of $27 million and $7 million in the consolidated financial statements in 2024 and 2023, respectively. A corresponding reduction in reserves of $27 million and $15 million were also reflected in 2024 and 2023, respectively, for unrecognized tax benefits for tax positions relating to the years that were under examination.
Interest and penalties associated with uncertain tax positions resulted in an expense of $12 million in 2025, a benefit of $15 million in 2024 and an expense of $3 million in 2023. These amounts reflect the beneficial impacts of various tax settlements. Liabilities for accrued interest and penalties were $30 million and $20 million as of December 31, 2025 and 2024, respectively.
Various foreign tax examinations are in progress and for these jurisdictions, income tax returns are open for examination for the period 2008 through 2025.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 24, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2023 | Feb 26, 2024 | |
| 2022 | Feb 27, 2023 | |
| 2021 | Mar 21, 2022 | |
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.