Vertiv Holdings CoVRT
Vertiv Holdings Co Income Taxes Disclosure
(8) INCOME TAXES
The Company's effective tax rate was 23.5%, 35.2%, and 13.8%, for the years ended December 31, 2025, 2024, and 2023, respectively. The effective rate in 2025 was primarily influenced by the mix of income between our U.S. and non-U.S. operations and net changes in valuation allowance and uncertain tax benefits offset by discrete tax benefits related to stock compensation. The effective rate in 2024 was primarily influenced by changes in tax incentives, offset by the net change in valuation allowance and the non-tax deductibility of the change in fair value of warrant liabilities. The effective rate in 2023 was primarily influenced by the net valuation allowance release offset by the non-tax deductibility of the change in fair value of warrant liabilities.
Provision for (Benefit from) Taxes
Earnings (loss) before income taxes from continuing operations consists of the following:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| U.S. | $ | 1,095.1 | $ | 189.5 | $ | 49.1 | |||||||||||
Non-U.S.(1) | 646.8 | 575.9 | 484.6 | ||||||||||||||
| Total earnings (loss) before income taxes | $ | 1,741.9 | $ | 765.4 | $ | 533.7 | |||||||||||
(1)Certain of the Company’s Non-U.S. entities generate losses for which a valuation allowance is provided for and accordingly do not create a tax benefit.
The principal components of income tax expense (benefit) from continuing operations consists of the following:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 160.2 | $ | 66.7 | $ | 45.5 | |||||||||||
| State and local | 35.5 | 21.8 | 16.9 | ||||||||||||||
| Non-U.S. | 190.3 | 235.5 | 142.5 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | 18.0 | (6.0) | (94.0) | ||||||||||||||
| State and local | 3.8 | (0.4) | (23.5) | ||||||||||||||
| Non-U.S. | 1.3 | (48.0) | (13.9) | ||||||||||||||
| Income tax expense (benefit) | $ | 409.1 | $ | 269.6 | $ | 73.5 | |||||||||||
Reconciliation of U.S. federal statutory taxes to the Company’s total income tax expense (benefit) from continuing operations consists of the following:
| Year Ended December 31, 2025 | |||||||||||
| Amount | Percentage | ||||||||||
Taxes at U.S. statutory rate (21%) | $ | 365.8 | 21.0 | % | |||||||
State and local taxes, net of federal tax benefit(1) | 31.2 | 1.8 | % | ||||||||
| Foreign Tax Effects | |||||||||||
| Switzerland | |||||||||||
| Changes in Valuation Allowance | 42.7 | 2.5 | % | ||||||||
| Other | (13.7) | (0.8) | % | ||||||||
| Other Foreign Jurisdictions | (2.0) | (0.1) | % | ||||||||
| Effect of Cross-Border Tax Laws | (13.9) | (0.8) | % | ||||||||
| Tax Credits | (1.9) | (0.1) | % | ||||||||
| Changes in Valuation Allowances | (1.6) | (0.1) | % | ||||||||
| Nontaxable or Nondeductible Items | |||||||||||
| Share-based Compensation | (26.1) | (1.5) | % | ||||||||
| Other | 6.7 | 0.3 | % | ||||||||
| Changes in Unrecognized Tax Benefits | 15.2 | 0.9 | % | ||||||||
Other Reconciling Items(2) | 6.7 | 0.4 | % | ||||||||
| Income Tax Expense | $ | 409.1 | 23.5 | % | |||||||
(1) The states and local jurisdictions that contribute to the majority (greater than 50%) of the tax effect in this category include California, Illinois, New Jersey, Oregon, and Texas.
(2) Represents several adjustments, none of which are significant for separate disclosure.
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
Taxes at U.S. statutory rate (21%) | $ | 160.8 | $ | 112.1 | |||||||
| State and local taxes, net of federal tax benefit | 19.4 | 13.5 | |||||||||
| Non-U.S. rate differential | 23.6 | 6.1 | |||||||||
| Non-U.S. tax holidays and incentives | (682.1) | (13.1) | |||||||||
| Uncertain tax positions | 13.7 | 5.7 | |||||||||
| U.S. tax impact of non-U.S. operations | (2.2) | 10.0 | |||||||||
| Change in valuation allowances | 633.4 | (100.5) | |||||||||
| Taxes on undistributed foreign earnings and withholding/dividend taxes | 26.1 | 13.2 | |||||||||
| Foreign derived intangible income | (8.9) | (3.0) | |||||||||
| Research and development deduction/credit | (9.7) | (15.0) | |||||||||
| Impact of non-tax litigation and other settlements | — | 5.5 | |||||||||
| Change in fair value of warrant liabilities | 94.3 | 33.2 | |||||||||
| Other permanent differences | 4.0 | 1.0 | |||||||||
| Impact of rate changes in non-U.S. jurisdictions | — | 1.4 | |||||||||
| Capital loss expiration | 12.2 | — | |||||||||
| Equity and non-deductible compensation | (23.2) | 1.0 | |||||||||
Other(1) | 8.2 | 2.4 | |||||||||
| Total income tax expense (benefit) | $ | 269.6 | $ | 73.5 | |||||||
(1)Represents several adjustments, none of which are significant for separate disclosure.
The Company has tax holiday agreements in place in China, which expire in between 2025 and 2027. It is the Company’s intention to reapply for these holidays as they expire. We anticipate that we will continue to qualify for these holidays, but we will assess based on business conditions at the time of renewal.
Deferred Income Taxes
As of December 31, 2025 and 2024, the Company has recognized $36.2 and $33.2, respectively, of net deferred income tax liabilities for U.S. income taxes, non-U.S. income taxes and foreign withholding taxes on outside basis differences for certain foreign subsidiaries with earnings that are not indefinitely reinvested.
The principal items that gave rise to deferred income tax assets and liabilities follow:
| December 31, 2025 | December 31, 2024 | ||||||||||
| Deferred tax assets | |||||||||||
| Net operating losses and capital losses | $ | 82.6 | $ | 44.7 | |||||||
| Capitalized research expenditures | 83.1 | 106.8 | |||||||||
| Accrued liabilities | 71.6 | 49.2 | |||||||||
| Employee compensation and benefits | 27.2 | 20.3 | |||||||||
| Pensions | 15.1 | 13.1 | |||||||||
| Business interest deduction limitation | 67.5 | 70.1 | |||||||||
| Inventory | 45.5 | 47.6 | |||||||||
| Research and development credit carryforward | — | 0.3 | |||||||||
| Lease liability | 44.0 | 26.1 | |||||||||
| Bad debts | 9.3 | 8.1 | |||||||||
| Intangibles | 103.0 | 99.4 | |||||||||
| Foreign tax credit carryforward | 25.1 | 26.2 | |||||||||
| Non-U.S. tax credits | 633.1 | 636.1 | |||||||||
| Other | 2.0 | 5.4 | |||||||||
| Total deferred tax assets, before valuation allowances | $ | 1,209.1 | $ | 1,153.4 | |||||||
| Valuation allowances | $ | (756.3) | $ | (710.9) | |||||||
| Deferred tax assets, net of valuation allowances | $ | 452.8 | $ | 442.5 | |||||||
| Deferred tax liabilities | |||||||||||
| Intangibles and goodwill | (273.7) | (179.9) | |||||||||
| Undistributed foreign earnings | (36.2) | (33.2) | |||||||||
| Property, plant & equipment | (61.1) | (21.2) | |||||||||
| Debt issuance costs | (7.2) | (19.1) | |||||||||
| Lease right-of-use asset | (40.6) | (24.4) | |||||||||
| Deferred gain | (84.6) | (99.6) | |||||||||
| Other | (2.6) | (2.1) | |||||||||
| Total deferred tax liabilities | $ | (506.0) | $ | (379.5) | |||||||
| Net deferred income tax assets | $ | (53.2) | $ | 63.0 | |||||||
At December 31, 2025, the gross amount of the Company's federal net operating losses was $175.3, acquired through the PurgeRite acquisition. Refer to "Note 2 - Acquisitions" for additional information on this acquisition. At December 31, 2024, the Company had utilized all available federal net operating losses. At December 31, 2025, the gross amount of the Company’s state net operating losses was $296.8, expiring at various times between 2025 and 2042 with some losses having an unlimited carryforward period. At December 31, 2025, the Company had $25.4 other federal tax credit carryforwards expiring between 2027 and 2035. At December 31, 2025, the Company had other immaterial state tax credit carryforwards expiring between 2029 and 2038.
The use of certain U.S. tax attributes as of December 31, 2025 are subject to an annual limitation from acquisitions. Refer to "Note 2 - Acquisitions" for additional information on the Company's acquisitions. There can be no assurance that trading in our shares will not affect another change in ownership under the Internal Revenue Code which could impose an additional limit on the use of our tax attributes.
At December 31, 2025, the Company’s foreign net operating losses that are available to offset future taxable income were $205.9. These foreign loss carryforwards will expire at various times beginning in 2026 with some losses having an unlimited carryforward period.
At December 31, 2025, the Company’s foreign capital loss carryforwards were $12.7. These foreign capital loss carryforwards have an unlimited carryforward period.
At December 31, 2025, the Company has non-U.S. tax credits generated in 2024 as a result of an internal restructuring within the Europe, Middle East & Africa region in the amount of $633.1 that are available until 2034.
Pursuant to the terms of the separation, Emerson agreed to indemnify the Company for all U.S. federal, state or local income taxes, as well as non-U.S. income taxes, that are attributable to any period prior to the separation. An indemnification receivable of $7.0 has been recorded in noncurrent other assets for the uncertain tax positions related to periods prior to the separation. The impact on the Company’s tax expense for changes in uncertain tax positions for
periods prior to the separation (discussed below) will be offset by the Emerson indemnification, resulting in no net effect on the Company’s net income.
Uncertain Tax Positions
Following are changes in unrecognized tax benefits before considering recoverability of cross-jurisdictional tax credits (federal, state, and non-U.S.) and temporary differences. The amount of unrecognized tax benefits is not expected to significantly increase or decrease within the next 12 months.
| December 31, 2025 | December 31, 2024 | December 31, 2023 | |||||||||||||||
| Beginning balance | $ | 149.1 | $ | 102.5 | $ | 97.0 | |||||||||||
| Additions for the current year tax positions | 23.5 | 83.2 | 20.6 | ||||||||||||||
| Additions for prior year tax positions | 17.7 | 0.4 | 5.8 | ||||||||||||||
| Reductions for prior year tax positions | (3.0) | (24.4) | (0.5) | ||||||||||||||
| Reductions for settlements with tax authorities | — | — | (4.1) | ||||||||||||||
| Reductions for expirations of statute of limitations | (8.9) | (12.6) | (16.3) | ||||||||||||||
| Ending balance | $ | 178.4 | $ | 149.1 | $ | 102.5 | |||||||||||
The total amount of net unrecognized tax benefits that would affect income tax expense, if recognized in the Consolidated Financial Statements, is $128.2. In addition, an adjustment of $7.4 would result to other expense for reversal of the indemnification receivable. The Company accrues interest and penalties related to income taxes in income tax expense. As of December 31, 2025, 2024, and 2023, total accrued interest and penalties were $22.8, $19.2, and $19.0, respectively.
Eligible domestic subsidiaries file a consolidated U.S. Federal income tax return. U.S. Tax Returns through December 31, 2021 are no longer subject to examination. The Internal Revenue Service is currently reviewing the 2022 tax return. The status of state and non-U.S. tax examinations varies due to the numerous legal entities and jurisdictions in which the Company operates. As noted above, pursuant to the terms of the transactions, Emerson will indemnify the Company for certain tax assessments for periods prior to closing.
Valuation Allowances
The change in the income tax valuation allowance is as follows:
| December 31, 2025 | December 31, 2024 | December 31, 2023 | |||||||||||||||
| Beginning balance | $ | 710.9 | $ | 146.8 | $ | 250.4 | |||||||||||
| Additions (reductions) charged to expense | 43.3 | 633.4 | (100.4) | ||||||||||||||
| Additions (reductions) charged to other accounts | 2.1 | (69.3) | (3.2) | ||||||||||||||
| Ending balance | $ | 756.3 | $ | 710.9 | $ | 146.8 | |||||||||||
For the year ended December 31, 2025, the Company recorded a net valuation allowance change primarily related to the establishment of a valuation allowance on certain non-U.S. tax credits and certain non-U.S. tax losses that was partially offset by a valuation allowance release related to certain U.S. federal foreign tax credits. Of the total $45.4 total movement, $41.5 was charged to income tax expense, with the remaining $2.1 reduction related to foreign currency translation recorded through Other Comprehensive Income. For the year ended December 31, 2024, the Company recorded a net valuation allowance change of $564.1 primarily related to the establishment of a valuation allowance on certain non-U.S. tax credits that was partially offset by a valuation allowance release related to certain U.S. federal foreign tax credits and certain non-U.S. tax losses. At each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets.
Cash Taxes Paid
We adopted ASU 2023-09 on a prospective basis for the year ended December 31, 2025 and have included the following table as a result of the adoption, which presents income taxes paid (net of refunds received):
| Year Ended December 31, 2025 | |||||
| Federal taxes | $ | 164.1 | |||
| State and local taxes | 36.3 | ||||
| Foreign taxes: | |||||
| Italy | 46.6 | ||||
| Ireland | 33.8 | ||||
| Other foreign jurisdictions | 147.4 | ||||
| Total cash taxes paid | $ | 428.2 | |||
Below is a summary of income taxes paid for the years ended December 31, 2024 and 2023:
| December 31, 2024 | December 31, 2023 | ||||||||||
| Cash paid during the year for: | |||||||||||
| Income taxes, net of refunds | $ | 272.5 | $ | 153.0 | |||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 13, 2026 | Showing above |
| 2024 | Feb 18, 2025 | |
| 2023 | Feb 23, 2024 | |
| 2022 | Feb 27, 2023 | |
| 2021 | Mar 1, 2022 | |
| 2020 | Mar 1, 2021 | |
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.