VERTEX PHARMACEUTICALS INC / MAVRTX
VERTEX PHARMACEUTICALS INC / MA Income Taxes Disclosure
Income Taxes
We are subject to U.S. federal, state, and foreign income taxes. The components of income before provision for income
taxes consisted of the following:
Year ended December 31, | |||||
2025 | 2024 | 2023 | |||
(in millions) | |||||
United States | $2,821.2 | $(1,369.7) | $3,089.1 | ||
Foreign | 1,822.0 | 1,618.2 | 1,290.7 | ||
Income before provision for income taxes | $4,643.2 | $248.5 | $4,379.8 | ||
The components of our provision for income taxes consisted of the following:
Year ended December 31, | |||||
2025 | 2024 | 2023 | |||
(in millions) | |||||
Current taxes: | |||||
Federal | $679.1 | $704.9 | $900.4 | ||
State | 35.9 | 118.2 | 46.2 | ||
Foreign | 485.8 | 309.8 | 350.1 | ||
Total current taxes | 1,200.8 | 1,132.9 | 1,296.7 | ||
Deferred taxes: | |||||
Federal | (527.0) | (438.7) | (569.9) | ||
State | (22.1) | (48.7) | (21.9) | ||
Foreign | 38.3 | 138.6 | 55.3 | ||
Total deferred taxes | (510.8) | (348.8) | (536.5) | ||
Provision for income taxes | $690.0 | $784.1 | $760.2 | ||
Unremitted Earnings
As of December 31, 2025, we do not consider a portion of the earnings of our foreign subsidiaries to be indefinitely
reinvested. Upon repatriation of the non-indefinitely invested earnings in the form of distributions or otherwise, we could be
subject to immaterial U.S. federal withholding taxes payable to various foreign countries and income taxes in certain states.
There are no material deferred taxes recorded on the excess of financial statement reporting over the tax basis of our
investments in our foreign subsidiaries. Any permanently reinvested basis differences could reverse if we sell our foreign
subsidiaries or various other events occur, none of which were considered probable as of December 31, 2025. The tax
liabilities described above would not be material to our consolidated financial statements.
Effective Tax Rate Reconciliation
A reconciliation of our provision for income taxes and our effective tax rate as compared to the U.S. federal statutory
rate of 21% for the year ended December 31, 2025 was as follows:
Year ended December 31, 2025 | |||
Amount | Percentage | ||
(in millions, except percentages) | |||
Income before provision for income taxes | $4,643.2 | ||
Federal statutory tax rate | 975.1 | 21.0% | |
State and local income taxes, net of federal income tax effect (1) | (1.9) | —% | |
Foreign tax effects | |||
United Kingdom (“U.K.”) | |||
Statutory tax rate difference between U.K. and U.S. | 64.7 | 1.4% | |
Other | 8.3 | 0.2% | |
Other foreign jurisdictions | 10.5 | 0.2% | |
Effect of cross-border tax laws | |||
Deferred charges related to intra-entity transfers | (61.5) | (1.3)% | |
Foreign-derived deduction eligible income | (58.5) | (1.3)% | |
Subpart F income, net of credits | (97.4) | (2.1)% | |
Other | 0.8 | —% | |
Tax credits | |||
Research and development tax credits | (154.4) | (3.3)% | |
Nontaxable or nondeductible items | |||
Stock compensation (benefit), shortfalls and cancellations | (61.9) | (1.3)% | |
Other | 25.4 | 0.5% | |
Changes in unrecognized tax benefits | 64.3 | 1.4% | |
Other adjustments | (23.5) | (0.5)% | |
Provision for income taxes and effective tax rate | $690.0 | 14.9% | |
(1)The state that contributes to the majority of the state and local tax effect is New Jersey.
A reconciliation of our provision for income taxes and our effective tax rate as compared to the U.S. federal statutory
rate of 21% for the years ended December 31, 2024 and 2023 was as follows:
Year ended December 31, | |||
2024 | 2023 | ||
Federal statutory tax rate | 21.0% | 21.0% | |
State taxes, net of federal benefit | 29.5% | 0.3% | |
Foreign income tax rate differential | 21.3% | (0.6)% | |
U.S. tax on foreign earnings, net of credits | (12.6)% | 0.7% | |
Foreign derived intangible income deduction | (28.3)% | (1.7)% | |
Tax credits | (102.9)% | (6.0)% | |
Stock compensation (benefit), shortfalls and cancellations | (25.5)% | (0.8)% | |
Uncertain tax positions | 11.3% | 3.4% | |
Non-deductible AIPR&D | 373.8% | —% | |
Other | 27.9% | 1.1% | |
Effective tax rate | 315.5% | 17.4% | |
Our 14.9% effective tax rate for 2025 was lower than the U.S. statutory rate primarily due to research and development
tax credits, increased utilization of foreign tax credits, and excess tax benefits related to stock-based compensation.
Our 315.5% effective tax rate for 2024 was materially different than the U.S. statutory rate primarily due to the
$4.4 billion of non-deductible AIPR&D resulting from our acquisition of Alpine, which significantly lowered our pre-tax
income. The non-deductible AIPR&D was partially offset by a benefit from a research and development tax credit study that
was completed in 2024 and excess tax benefits related to stock-based compensation.
Our 17.4% effective tax rate for 2023 was lower than the U.S. statutory rate primarily due to a benefit from a research
and development tax credit study that was completed in 2023 and excess tax benefits related to stock-based compensation,
partially offset by changes in uncertain tax positions.
Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities are determined based on the difference between financial statement and tax bases using
enacted tax rates in effect for the year in which the differences are expected to reverse. The components of the deferred taxes
were as follows:
As of December 31, | |||
2025 | 2024 | ||
(in millions) | |||
Deferred tax assets: | |||
Tax credit carryforwards | $355.8 | $298.3 | |
Intangible assets | 651.6 | 769.3 | |
Stock-based compensation | 171.8 | 164.2 | |
Operating lease assets | 390.7 | 333.5 | |
R&D capitalization | 1,920.5 | 1,404.1 | |
Other | 233.5 | 192.0 | |
Gross deferred tax assets | 3,723.9 | 3,161.4 | |
Valuation allowance | (326.2) | (272.9) | |
Total deferred tax assets | 3,397.7 | 2,888.5 | |
Deferred tax liabilities: | |||
Operating lease liabilities | (312.7) | (271.9) | |
Other | (187.1) | (285.5) | |
Total deferred tax liabilities | (499.8) | (557.4) | |
Net deferred tax assets | $2,897.9 | $2,331.1 | |
On a periodic basis, we reassess the valuation allowance on our deferred income tax assets, weighing positive and
negative evidence to assess the recoverability of our deferred tax assets. As of December 31, 2025, we maintained a valuation
allowance of $326.2 million related to U.S. state tax attributes.
In addition to deferred tax assets and liabilities, we have recorded deferred charges related to intra-entity sales of
inventory. As of December 31, 2025 and 2024, the total deferred charges were $318.4 million and $279.3 million,
respectively.
Tax Attributes
As of December 31, 2025, we had the following net operating losses (“NOLs”), capital losses, and tax credit
carryforwards, which if not utilized, will begin to expire in the year listed below:
As of December 31, 2025 | ||||
Amount | Year | |||
(in millions) | ||||
Federal net operating loss carryforwards | $57.3 | 2028 | ||
Federal capital loss carryforwards | $27.6 | 2027 | ||
Federal research and development tax credit carryforwards | $3.6 | 2034 | ||
State net operating loss carryforwards | $450.2 | 2027 | ||
State research and development tax credit carryforwards | $471.7 | 2026 | ||
Foreign net operating loss carryforwards | $30.3 | 2041 | ||
Foreign tax credit carryforwards | $15.9 | 2026 | ||
Included in the amounts above are $84.9 million of NOLs, and $64.6 million of credits that have unlimited carryforward
periods.
Our NOLs and credits could be subject to annual limitations due to ownership change limitations provided by U.S.
Internal Revenue Service (“IRS”) Code Section 382 and similar state provisions. An annual limitation could result in the
expiration of NOLs and tax credit carryforward before utilization. There are limitations on the tax attributes of acquired
entities however, we do not believe the limitations will have a material impact on the utilization of the NOLs or tax credits.
Cash Paid for Income Taxes
Cash paid for income taxes was as follows:
Year ended December 31, 2025 | |
(in millions) | |
Federal | $968.9 |
State | 74.2 |
Foreign | |
United Kingdom | 473.2 |
Other | 50.4 |
Total cash paid for income taxes | $1,566.7 |
Unrecognized Tax Benefits
Unrecognized tax benefits were as follows:
Year ended December 31, | |||||
2025 | 2024 | 2023 | |||
(in millions) | |||||
Balance at beginning of the period | $706.2 | $615.9 | $459.6 | ||
Increases related to current period tax positions | 119.5 | 119.2 | 116.0 | ||
Increases related to prior period tax positions | 5.2 | 4.6 | 62.5 | ||
Decreases related to prior period tax positions | (5.7) | (1.9) | (14.4) | ||
Statute of limitations expiration | (10.7) | (16.6) | (8.1) | ||
Settlement with tax authorities | (6.3) | (14.5) | — | ||
Changes in foreign exchange rates | 43.9 | (0.5) | 0.3 | ||
Balance at end of period | $852.1 | $706.2 | $615.9 | ||
During 2025, we increased our gross unrecognized tax benefits by $145.9 million, primarily associated with
intercompany transfer pricing matters. The unrecognized tax benefits were recorded as a $7.4 million decrease to our gross
deferred tax assets and a $138.5 million increase to our gross tax liability.
During 2024, we increased our gross unrecognized tax benefits by $90.3 million, primarily associated with intercompany
transfer pricing matters. The unrecognized tax benefits were recorded as a $1.6 million increase to our gross deferred tax
assets and a $91.9 million increase to our gross tax liability.
During 2023, we increased our gross unrecognized tax benefits by $156.3 million, primarily associated with
intercompany transfer pricing matters. This unrecognized tax benefit was recorded as a $3.7 million increase to our gross
deferred tax assets and a $160.0 million increase to our gross tax liability.
As of December 31, 2025, we have classified $46.2 million, and $805.9 million of our unrecognized tax benefits as
credits to “Deferred tax assets,” and “Other long-term liabilities,” respectively, on our consolidated balance sheet.
Included in our unrecognized tax benefits as of December 31, 2025, 2024 and 2023, we had $436.6 million, $341.4
million and $288.7 million (net of the federal benefit on state issues), respectively, of unrecognized tax benefits, which would
affect our effective income tax rate if recognized.
We recognize potential interest and penalties related to unrecognized tax benefits in our provision for income taxes. In
2025 and 2023, we recognized total net interest and penalty expenses of $13.1 million and $84.9 million, respectively. In
2024, we recognized total net interest and penalty credits of $41.5 million. As of December 31, 2025 and 2024, our accrual
for interest and penalties was $95.7 million and $82.6 million, respectively.
The IRS and other local and foreign tax authorities routinely examine our tax returns, including intercompany transfer
pricing, and it is reasonably possible that we will adjust the value of our uncertain tax positions related these matters and
other issues as we receive additional information from various taxing authorities, including reaching settlements with such
authorities. In the case of intercompany transfer pricing, it is reasonably possible that taxing authorities do not agree with
each other on the reallocation of income or the valuation of intellectual property, in which case we could be subject to double
taxation, despite bilateral treaty agreements available to prevent this. In 2023, we came to settlement with the U.K’s HM
Revenue & Customs (“HMRC”) with respect to our tax positions for 2015 through 2020 and subsequently received Closure
Notices for those periods in 2024. Due to the nature of the adjustments, we have asserted our rights under the U.S./U.K.
Income Tax Convention pursuant to the mutual agreement procedures for the relief of double taxation for these matters.
We file U.S. federal income tax returns and income tax returns in various state, local and foreign jurisdictions. We have
various income tax audits ongoing at any time throughout the world. Except for jurisdictions where we have NOLs or tax
credit carryforwards, we are no longer subject to any tax assessment from tax authorities for years prior to 2014 in
jurisdictions that have a material impact on our consolidated financial statements.
In December 2022, E.U. member states reached an agreement to implement the minimum tax component (“Pillar Two”)
of the Organization for Economic Co-operation and Development’s (the “OECD’s”), global international tax reform initiative
with effective dates of January 1, 2024 and 2025. On January 5, 2026, the OECD announced that a ‘side-by-side’ agreement
was reached with member countries creating safe harbors to exempt U.S. multi-nationals from certain of the taxes under the
Pillar Two regime by recognizing the U.S. tax system as a compatible domestic minimum tax regime. Our exposure to other
countries’ minimum tax regimes was limited before these changes but the side-by-side agreement allows for certainty as our
structure may change in the future.
In July 2025, the U.S. enacted H.R.1, which includes significant provisions modifying the U.S. tax framework, including
the ability for companies to immediately deduct research and development expenditures for 2025 and provisions for
deducting previously capitalized amounts. H.R.1 does not have a material impact on our 2025 U.S. taxes, but we expect
further guidance to be issued. We will review guidance when issued for impacts on future years and disclose any impacts if
needed at that time. These legislative changes could have an impact on our future effective tax rates, tax liabilities, and cash
taxes.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 13, 2026 | Showing above |
| 2024 | Feb 13, 2025 | |
| 2023 | Feb 15, 2024 | |
| 2022 | Feb 10, 2023 | |
| 2021 | Feb 9, 2022 | |
| 2020 | Feb 11, 2021 | |
| 2019 | Feb 13, 2020 | |
| 2018 | Feb 13, 2019 | |
| 2017 | Feb 15, 2018 | |
| 2016 | Feb 23, 2017 | |
| 2015 | Feb 16, 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.