Trane Technologies plcTT

Trane Technologies plc Income Taxes Disclosure

10-KFiled Feb 5, 20268 min read
INCOME TAXES
Current and deferred provision for income taxes
Earnings before income taxes for the years ended December 31 were taxed within the following jurisdictions:
In millions202520242023
Ireland$793.3 $610.5 $199.2 
United States2,155.7 1,871.9 1,690.7 
Other729.6 759.4 677.4 
Total$3,678.6 $3,241.8 $2,567.3 
The components of the Provision for income taxes for the years ended December 31 were as follows:
In millions202520242023
Current tax expense (benefit):
Ireland$134.0 $107.3 $42.1 
U.S. Federal, State, and Local300.8 500.4 377.6 
Other157.5 149.0 132.2 
Total:592.3 756.7 551.9 
Deferred tax expense (benefit):
Ireland0.3 0.3 0.9 
U.S. Federal, State, and Local136.4 (128.2)(18.8)
Other(23.1)(1.2)(35.6)
Total:113.6 (129.1)(53.5)
Total tax expense (benefit):
Ireland134.3 107.6 42.9 
U.S. Federal, State, and Local437.2 372.2 358.8 
Other134.4 147.8 96.7 
Total$705.9 $627.6 $498.4 
The Provision for income taxes differs from the amount of income taxes determined by applying the applicable Irish Statutory income tax rate to pretax income, as a result of the following differences:
202520242023
Amount PercentAmountPercentAmountPercent
Statutory Irish rate$459.8 12.5 %$405.2 12.5 %$321.0 12.5 %
Increase (decrease) in rates resulting from:
Foreign tax effects:
United States
Statutory tax rate differences between Ireland and the U.S.183.2 5.0 %158.8 4.9 %138.6 5.4 %
State and Local income tax, net of Federal income tax effect92.9 2.5 %75.8 2.4 %83.6 3.3 %
Share based payment awards(43.6)(1.2)%(40.4)(1.2)%(31.2)(1.2)%
Valuation allowance(41.2)(1.1)%(36.3)(1.1)%(9.8)(0.4)%
Effect of cross-border tax laws:
Foreign derived intangible income (7.2)(0.2)%(13.0)(0.4)%(18.4)(0.7)%
Other effect of cross-border tax laws (U.S.)(1.0)0.0 %12.4 0.4 %0.5 0.0 %
Tax credits(31.5)(0.9)%(20.1)(0.6)%(19.5)(0.8)%
Other U.S.15.5 0.4 %12.9 0.4 %0.1 0.0 %
Other foreign jurisdictions51.5 1.5 %57.8 1.7 %21.6 0.8 %
Effect of cross-border tax laws16.3 0.4 %11.1 0.3 %— — %
Nontaxable or nondeductible items11.1 0.3 %6.0 0.2 %11.7 0.5 %
Changes in unrecognized tax benefits0.1 0.0 %(2.6)(0.1)%0.2 0.0 %
Effective income tax rate$705.9 19.2 %$627.6 19.4 %$498.4 19.4 %
On December 18, 2023, Ireland enacted legislation related to the 15% minimum tax element of the Organisation for Economic Co-operation and Development's tax reform initiative, commonly referred to as "Pillar Two," effective January 1, 2024. The Company has included the impacts of enacted legislative changes and continues to monitor additional guidance as it becomes available. The effects of Pillar Two are included in the 'Effect of cross-border tax laws' and 'Other foreign jurisdictions' lines in the table above.
Tax incentives, in the form of tax holidays, have been granted to the Company in certain jurisdictions to encourage industrial development. The expiration of these tax holidays varies by country. The tax holidays are conditional on the Company meeting certain employment and investment thresholds. The most significant tax holidays relate to the Company's qualifying locations in China, Puerto Rico and Panama. The benefit for the tax holidays for the years ended December 31, 2025, 2024 and 2023 was $45.0 million, $51.1 million and $51.9 million, respectively.
The Cash paid for income taxes for the years ended December 31 was as follows:
In millions202520242023
Ireland$135.1 $79.7 $36.1 
U.S. Federal233.4 407.0 263.0 
U.S. State and Local105.7 102.3 92.9 
Other172.9 128.2 134.1 
Total$647.1 $717.2 $526.1 
Deferred tax assets and liabilities
A summary of the deferred tax accounts at December 31 were as follows:
In millions20252024
Deferred tax assets:
Inventory and accounts receivable$14.3 $12.1 
Depreciable and amortizable assets
2.2 2.0 
Operating lease liabilities196.8 145.0 
Postemployment and other benefit liabilities233.9 254.6 
Funding liability6.4 6.1 
Other reserves and accruals250.0 223.9 
Net operating losses and credit carryforwards160.5 220.9 
Other21.8 39.9 
Gross deferred tax assets885.9 904.5 
Less: deferred tax valuation allowances(77.3)(110.3)
Deferred tax assets net of valuation allowances$808.6 $794.2 
Deferred tax liabilities:
Inventory and accounts receivable$(16.4)$(22.6)
Depreciable and amortizable assets
(1,068.1)(978.5)
Operating lease right-of-use assets(193.3)(142.2)
Postemployment and other benefit liabilities(16.7)(13.8)
Other reserves and accruals(7.7)(2.5)
Undistributed earnings of foreign subsidiaries(41.8)(36.0)
Other— (3.2)
Gross deferred tax liabilities(1,344.0)(1,198.8)
Net deferred tax assets (liabilities)$(535.4)$(404.6)
At December 31, 2025, no deferred taxes have been provided for earnings of certain of the Company's subsidiaries, since these earnings have been and under current plans will continue to be permanently reinvested in these subsidiaries. These earnings, if distributed, would result in additional taxes, which may be payable upon distribution, of approximately $401.9 million.
At December 31, 2025, the Company had the following operating loss, capital loss and tax credit carryforwards available to offset taxable income in prior and future years:
In millionsAmountExpiration
Period
U.S. Federal net operating loss carryforwards$28.5 2026-Unlimited
U.S. Federal credit carryforwards10.6 2026-2043
U.S. State net operating loss carryforwards2,168.5 2026-Unlimited
U.S. State credit carryforwards25.3 2026-Unlimited
Non-U.S. net operating loss carryforwards425.5 2026-Unlimited
The U.S. state net operating loss carryforwards were incurred in various jurisdictions. The non-U.S. net operating loss carryforwards were incurred in various jurisdictions, predominantly in Belgium, Brazil, Luxembourg, and Spain.
Activity associated with the Company's valuation allowance is as follows:
In millions202520242023
Beginning balance$110.3 $164.0 $199.8 
Increase to valuation allowance7.6 2.8 24.3 
Decrease to valuation allowance(34.0)(44.4)(57.8)
Write off against valuation allowance(8.1)(10.9)(2.2)
Acquisition and purchase accounting— — 1.3 
Accumulated other comprehensive income (loss)1.5 (1.2)(1.4)
Ending balance$77.3 $110.3 $164.0 
During 2025, the Company recorded a $26.8 million reduction in valuation allowances primarily related to deferred tax assets associated with both foreign tax credits and operations of international subsidiaries. Additional reductions in the valuation allowance related to deferred tax assets associated with foreign tax credits could be recognized in future periods if foreign source income exceeds current projections for the periods 2026 through 2027, the remainder of the carryforward period.
During 2024, the Company recorded a $30.4 million reduction in valuation allowances primarily related to deferred tax assets associated with both foreign tax credits and operations of international subsidiaries.
During 2023, the Company recorded a $30.3 million reduction in valuation allowances primarily related to deferred tax assets associated with both foreign tax credits and operations of international subsidiaries.
Unrecognized tax benefits
The Company has total unrecognized tax benefits of $62.4 million and $86.5 million as of December 31, 2025, and December 31, 2024, respectively. The amount of unrecognized tax benefits that, if recognized, would affect the continuing operations effective tax rate are $38.7 million as of December 31, 2025. The total amount of unrecognized tax benefits relating to the Company's tax positions is subject to change based on future events including, but not limited to, the settlements of ongoing audits and/or the expiration of applicable statutes of limitations. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
In millions202520242023
Beginning balance$86.5 $84.9 $82.4 
Additions based on tax positions related to the current year6.0 4.6 3.6 
Additions based on tax positions related to prior years32.8 8.1 0.6 
Reductions based on tax positions related to prior years(27.8)(2.8)(0.5)
Reductions related to settlements with tax authorities(34.5)(2.5)(1.4)
Reductions related to lapses of statute of limitations(5.0)(3.5)(1.0)
Translation (gain) loss4.4 (2.3)1.2 
Ending balance$62.4 $86.5 $84.9 
The Company records interest and penalties associated with the uncertain tax positions within its Provision for income taxes. The Company had reserves associated with interest and penalties, net of tax, of $10.1 million and $13.9 million at December 31, 2025 and December 31, 2024, respectively. For the years ended December 31, 2025 and December 31, 2024, the Company recognized $1.1 million and $0.4 million tax expense, respectively, in interest and penalties, net of tax in continuing operations related to these uncertain tax positions.
The Provision for income taxes involves a significant amount of management judgment regarding interpretation of relevant facts and laws in the jurisdictions in which the Company operates. Future changes in applicable laws, projected levels of taxable income and tax planning could change the effective income tax rate and tax balances recorded by the Company. In addition, tax authorities periodically review income tax returns filed by the Company and can raise issues regarding its filing positions, timing and amount of income or deductions, and the allocation of income among the jurisdictions in which the Company operates. A significant period of time may elapse between the filing of an income tax return and the ultimate resolution of an issue raised by a revenue authority with respect to that return. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Belgium, Brazil, Canada, China, France, Germany, Ireland, Italy, Luxembourg, Mexico, Singapore, Spain, the Netherlands, the United Kingdom and the United States. These examinations on their own, or any subsequent litigation related to the examinations, may result in additional income taxes or penalties against the Company. If the ultimate result of these audits differ from original or adjusted estimates, they could have a material impact on the Company's income tax provision. The examination of the Company's U.S. federal income tax returns by the Internal Revenue Service (IRS) has been concluded for tax years 2016-2019; substantially all of the Company's U.S. federal tax returns are effectively settled for tax years prior to 2022. In general, the examination of the Company's material non-U.S. income tax returns is complete or effectively settled for the years prior to 2015, with certain matters prior to 2015 being resolved through appeals and litigation and also unilateral procedures as provided for under double tax treaties.
On July 4, 2025, the United States enacted OBBBA. The impacts of the new legislation have been reflected in the condensed consolidated financial statements as of December 31, 2025, and are not considered material. The Company continues to evaluate the legislation and review guidance from the U.S. Department of Treasury and could require further adjustment.

Historical Timeline

Fiscal YearFiled
2025Feb 5, 2026Showing above
2024Feb 6, 2025
2023Feb 8, 2024
2022Feb 10, 2023
2021Feb 7, 2022
2020Feb 9, 2021
2019Feb 18, 2020
2018Feb 12, 2019
2017Feb 12, 2018
2016Feb 13, 2017
2015Feb 12, 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.

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