PEPSICO INCPEP

PEPSICO INC Income Taxes Disclosure

10-KFiled Feb 3, 20266 min read
Income Taxes
The components of income before income taxes are as follows:
202520242023
United States$806 $2,590 $4,120 
Foreign9,438 9,356 7,297 
$10,244 $11,946 $11,417 
The provision for income taxes consisted of the following:
202520242023
Current:
U.S. Federal$299 $1,033 $1,133 
Foreign1,583 1,406 1,201 
State42 255 309 
1,924 2,694 2,643 
Deferred:
U.S. Federal116 (306)(109)
Foreign(116)(10)(212)
State25 (58)(60)
25 (374)(381)
$1,949 $2,320 $2,262 
A reconciliation of the U.S. Federal statutory tax rate to our 2025 annual tax rate is as follows:
AmountTax Rate
U.S. Federal statutory tax$2,151 21.0 %
State income tax, net of U.S. Federal tax benefit (a)
25 0.2 
Changes in valuation allowances12 0.1 
Foreign tax effects
Ireland
Statutory income tax rate differential(119)(1.2)
Other24 0.2 
Singapore
Tax incentive(113)(1.1)
Other(26)(0.3)
Switzerland
Changes in valuation allowances(149)(1.5)
Other32 0.3 
Bermuda
Statutory income tax rate differential(310)(3.0)
Other foreign jurisdictions21 0.2 
Effect of cross-border tax laws (b)
Transfer pricing adjustments128 1.3 
Global intangible low-tax income (GILTI)115 1.1 
Other(110)(1.0)
Tax credits(29)(0.3)
Changes in unrecognized tax benefits181 1.8 
Nondeductible and nontaxable items, net(31)(0.3)
Other147 1.5 
Reported tax$1,949 19.0 %
(a)State taxes in California, Illinois, New Jersey, Texas, Minnesota, Oregon, Wisconsin, Louisiana, Michigan, and Arizona make up the majority (greater than 50%) of the tax effect in this category.
(b)Includes the impact of any tax credits.
A reconciliation of the U.S. Federal statutory tax rate to our 2024 and 2023 annual tax rate is as follows:
20242023
U.S. Federal statutory tax rate21.0 %21.0 %
State income tax, net of U.S. Federal tax benefit1.3 1.8 
Lower taxes on foreign results(2.5)(2.5)
Juice Transaction— (0.1)
Other, net(0.4)(0.4)
Annual tax rate19.4 %19.8 %
A summary of income taxes paid in 2025 is as follows:
Amount
U.S. Federal$1,107 
U.S. State and Local (a)
243 
Foreign
Ireland424 
Mexico313 
Russia237 
Other759 
1,733 
Total$3,083 
(a)No single state or local jurisdiction accounts for more than 5% of the total income taxes paid.
Tax Cuts and Jobs Act
As of December 27, 2025, our mandatory transition tax liability was $965 million, which must be paid in 2026 and will represent our final payment under the provisions of the TCJ Act. We reduced our liability through cash payments by $772 million in 2025, $579 million in 2024 and $309 million in 2023.
The TCJ Act also created a requirement that certain income earned by foreign subsidiaries, known as GILTI, must be included in the gross income of their U.S. shareholder. The FASB allows an accounting policy election of either recognizing deferred taxes for temporary differences expected to reverse as GILTI in future years or recognizing such taxes as a current-period expense when incurred. We elected to treat the tax effect of GILTI as a current-period expense when incurred.
Other Tax Matters
On July 4, 2025, the One Big Beautiful Bill (OBBB) Act, which includes a broad range of tax reform provisions, was signed into law in the United States. The OBBB Act did not have a material impact on our annual effective tax rate in 2025 and we do not expect it to have a material impact in 2026.
Numerous countries, including European Union member states, have enacted or are expected to enact legislation incorporating the OECD model rules for a global minimum tax rate of 15% with widespread implementation expected by the end of 2026. Legislation enacted as of December 27, 2025 did not have a material impact on our financial statements for 2025. As the legislation becomes effective in countries in which we do business, our taxes will increase and negatively impact our provision for income taxes.
In 2024 and 2023, tax benefits of $54 million ($0.04 per share) and $68 million ($0.05 per share), respectively, were recorded related to the impairment of certain consolidated investments.
Deferred tax liabilities and assets are comprised of the following:
20252024
Deferred tax liabilities
Property, plant and equipment$2,047 $1,868 
Right-of-use assets819 772 
Debt guarantee of wholly-owned subsidiary578 578 
Recapture of net operating losses488 488 
Pension liabilities 238 112 
Other486 301 
Gross deferred tax liabilities4,656 4,119 
Deferred tax assets
Net carryforwards6,849 6,737 
Intangible assets other than nondeductible goodwill1,996 1,599 
Lease liabilities819 773 
Share-based compensation141 148 
Retiree medical benefits96 104 
Other employee-related benefits372 415 
Deductible state tax and interest benefits181 202 
Capitalized research and development134 256 
Other927 948 
Gross deferred tax assets11,515 11,182 
Valuation allowances(6,120)(6,185)
Deferred tax assets, net5,395 4,997 
Net deferred tax (assets)/liabilities$(739)$(878)
A summary of our valuation allowance activity is as follows:
202520242023
Balance, beginning of year$6,185 $6,478 $5,013 
(Benefit)/provision(284)(198)1,419 
Other additions/(deductions)219 (95)46 
Balance, end of year$6,120 $6,185 $6,478 
Reserves
A number of years may elapse before a particular matter, for which we have established a reserve, is audited and finally resolved. The number of years with open tax audits varies depending on the tax jurisdiction. Our major taxing jurisdictions and the related open tax audits are as follows:
Jurisdiction
Years Open to AuditYears Currently Under Audit
United States
2014-20242014-2019
Mexico
2014-20242014-2020
Canada (Domestic)
2021-20242021
Canada (International)
2012-20242012-2021
Russia
2022-2024None
Our annual tax rate is based on our income, statutory tax rates and tax planning strategies and transactions, including transfer pricing arrangements, available to us in the various jurisdictions in which we operate. Significant judgment is required in determining our annual tax rate and in evaluating our tax positions. We establish reserves when, despite our belief that our tax return positions are fully supportable, we believe that certain positions are subject to challenge and that we likely will not succeed. We adjust these reserves, as well as the related interest, in light of changing facts and circumstances, such as the progress of a tax audit, new tax laws, relevant court cases or tax authority settlements. Settlement of any particular issue would usually require the use of cash. Favorable resolution would be recognized as a reduction to our annual tax rate in the year of resolution.
As of December 27, 2025, the total gross amount of reserves for income taxes, reported in other liabilities, was $2.4 billion. We accrue interest related to reserves for income taxes in our provision for income taxes and any associated penalties are recorded in selling, general and administrative expenses. The gross amount of interest accrued, reported in other liabilities, was $450 million as of December 27, 2025, of which $2 million of tax benefit was recognized in 2025, reflecting the release of federal interest accruals. The gross amount of interest accrued, reported in other liabilities, was $469 million as of December 28, 2024, of which $103 million of tax expense was recognized in 2024.
A reconciliation of unrecognized tax benefits is as follows:
20252024
Balance, beginning of year$2,284 $2,093 
Additions for tax positions related to the current year153 210 
Additions for tax positions from prior years124 108 
Reductions for tax positions from prior years(76)(46)
Settlement payments(114)(24)
Statutes of limitations expiration(18)(31)
Translation and other23 (26)
Balance, end of year$2,376 $2,284 
Carryforwards and Allowances
Operating loss carryforwards and income tax credits totaling $35.5 billion as of December 27, 2025 are being carried forward in a number of foreign and state jurisdictions where we are permitted to use tax operating losses and income tax credits from prior periods to reduce future taxable income or income tax liabilities. These operating losses and income tax credits will expire as follows: $0.8 billion in 2026, $29.9 billion between 2027 and 2044 and $4.8 billion may be carried forward indefinitely. We establish valuation allowances for our deferred tax assets if, based on the available evidence, it is not more likely than not that some portion or all of the deferred tax assets will be realized.
Undistributed International Earnings
As of December 27, 2025, we had approximately $12 billion of undistributed international earnings. We intend to continue to reinvest $12 billion of earnings outside the United States for the foreseeable future and while future distribution of these earnings would not be subject to U.S. federal tax expense, no deferred tax liabilities with respect to items such as certain foreign exchange gains or losses, foreign withholding taxes or state taxes have been recognized. It is not practicable for us to determine the amount of unrecognized tax expense on these reinvested international earnings.
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Historical Timeline

Fiscal YearFiled
2025Feb 3, 2026Showing above
2024Feb 4, 2025
2023Feb 9, 2024
2022Feb 9, 2023
2021Feb 10, 2022
2020Feb 11, 2021
2019Feb 13, 2020
2018Feb 15, 2019
2017Feb 13, 2018
2016Feb 15, 2017
2015Feb 11, 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.

Other Available Disclosures

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