XBP Global Holdings, Inc. Income Taxes Disclosure

14.     Income Taxes

The Company provides for income taxes using an asset and liability approach, under which deferred income taxes are provided for based upon enacted tax laws and rates applicable to periods in which the taxes become payable.

For financial reporting purposes, income/ (loss) before income taxes includes the following components:

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The provision for federal, state, and foreign income taxes consists of the following:

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The differences between income taxes expected by applying the U.S. federal statutory tax rate of 21% and the amount of income taxes provided for period from August 1, 2025 through December 31, 2025 (Successor) and period from January 1, 2025 through July 31, 2025 (Predecessor) are as follows:

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Cash payments of U.S. federal, state and foreign income taxes, net of refunds, were as follows:

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The differences between income taxes expected by applying the U.S. federal statutory tax rate of 21% and the amount of income taxes provided for the year ended December 31, 2024 (Predecessor), before the adoption of ASU 2023-09 and as previously disclosed, are as follows:

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The components of deferred income tax liabilities and assets are as follows:

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Gross deferred tax assets are reduced by valuation allowances to the extent the Company determines it is not more-likely-than-not the deferred tax assets are expected to be realized. At December 31, 2025 (Successor), the Company recognized $156.9 million of valuation allowances against gross deferred tax assets primarily related to disallowed interest deduction and state and foreign net operating losses. Of this amount, approximately $1.7 million of the total valuation allowance relates to state limitations on the utilization of net operating loss carryforwards due to numerous changes in ownership. Approximately $92.7 million and $13.2 million of the total valuation allowance relates to U.S. federal and state disallowed interest deduction pursuant to the TCJA. The remaining $49.3 million of the valuation allowance relates to non-limited U.S. and foreign net operating losses that are not expected to be realizable.

The net change during the year from December 31, 2024 (Predecessor) in the total valuation allowance was a decrease of $259.3 million primarily driven by fresh start accounting adjustments, including the recognition of deferred tax liabilities associated with revalued assets, which provided a source of taxable income supporting the realizability of certain deferred tax assets. In addition, the decrease reflects the reduction in deferred tax assets related to debt instruments and interest limitation carryforwards under Section 163(j) and the reduction of the corresponding valuation allowances. These decreases were partially offset by valuation allowances recorded on deferred tax assets primarily related to net operating losses generated during the current period and as a result of purchase accounting adjustments. The company has recorded a valuation allowance against these deferred tax assets as of December 31, 2025 (Successor) as it has determined that it is not more likely than not that such deferred tax assets will be realized.

The Company has not performed a detailed analysis under Section 382 of the Internal Revenue Code (the “Code”) with respect to the tax attributes recorded as part of the purchase accounting, therefore, limitations on utilization, if any, have not been determined.

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Included in deferred tax assets are federal, foreign and state net operating loss carryforwards, and state tax credit carryforwards due to expire beginning in 2026 through 2044. As of December 31, 2025 (Successor), the Company has state income tax net operating loss (NOL) carryforwards of $323.6 million, which will expire at various dates from 2026 through 2044, and $5.1 million of federal NOLs and $79.9 million of state NOLs that carry forward indefinitely. Such NOL carryforwards expire as follows:

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As of December 31, 2025 (Successor), the Company has foreign net operating loss carryforwards of $34.3 million, $0.2 million of which were generated in Poland and Serbia, $0.2 million were generated in Finland and all of which will expire in 2026 and 2028, respectively. The remainder of the foreign net operating losses will be carried forward indefinitely.

The Company accounts for uncertain tax positions in the Company's financial statements and utilizes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on tax returns. The total amount of unrecognized tax benefits, exclusive of interest and penalties, is $4.3 million, and $3.5 million at December 31, 2025 (Successor) and 2024 (Predecessor), respectively. Included in the balance of unrecognized tax benefits as of December 31, 2025 (Successor) and 2024 (Predecessor) are $4.3 million and $3.5 million, respectively, of tax benefits that, if recognized, would benefit the effective tax rate. Total accrued interest and penalties recorded on the consolidated balance sheet was $6.2 million and $4.7 million at December 31, 2025 (Successor) and 2024 (Predecessor), respectively. The total amount of interest and penalties recognized in the consolidated statement of operations for the years ended December 31, 2025 (Successor) and 2024 (Predecessor) was $0.8 million and $0.8 million, respectively.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:

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The Company files income tax returns in the U.S. and various state and foreign jurisdictions. The statute of limitations for U.S. purposes is open for tax years ending on or after December 31, 2020. State jurisdictions that remain subject to examination are not considered significant. The Company has significant foreign operations in India and EMEA. The Company may be subject to examination by the India tax authorities for tax periods ending on or after March 31, 2020. In addition, the company is open for examination by German tax authorities for tax periods ending on or after December 31, 2018.

At December 31, 2025 (Successor), the Company maintains its prior indefinite reinvestment assertion on undistributed earnings related to certain foreign subsidiaries. Accordingly, no deferred taxes have been provided for

withholding taxes or other taxes that would result upon repatriation of approximately $151.0 million of undistributed earnings from these foreign subsidiaries as those earnings continue to be permanently reinvested. However, the Company does not indefinitely reinvest earnings in Canada, India, Mexico and Philippines. The Company recorded $10.4 million and $9.8 million of foreign withholding taxes on the undistributed earnings of these jurisdictions at December 31, 2025 (Successor) and 2024 (Predecessor), respectively. The Company recorded $0.3 million, $0.3 million and $0.7 million of deferred tax expenses in the consolidated and combined statement of operations for period from August 1, 2025 through December 31, 2025 (Successor) and period from January 1, 2025 through July 31, 2025 (Predecessor) and the year ended December 31, 2024 (Predecessor), respectively. The foreign withholding taxes deferred expense recorded in the current year is attributable to the current year undistributed earnings.

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The Company is continuing to refine the calculation of the Transaction Tax Liabilities. However, the full set of required data to complete the analysis will not be available until 2025 federal income tax return for ETI is filed, which is expected to occur in the next few weeks. The draft analysis reflects tax liabilities below the initial $15 million funding obligation.