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Income Taxes | 9 Months Ended
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Sep. 29, 2024
Income Taxes | S. INCOME TAXES A reconciliation of the United States federal statutory corporate tax rate to Teradyne’s effective tax rate was as follows:
|  | For the Three Months Ended |  |  | For the Nine Months Ended |
|  | September 29, 2024 |  |  | October 1, 2023 |  |  | September 29, 2024 |  |  | October 1, 2023 |
U.S. statutory federal tax rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 21.0 | %
Non-deductible officers' compensation |  |  | 0.5 |  |  |  | 1.3 |  |  |  | 0.4 |  |  |  | 1.1 |
Tax credits |  |  | (5.0 | ) |  |  | (9.3 | ) |  |  | (3.6 | ) |  |  | (5.0 | )
Discrete expense (benefit) related to reserves for uncertain tax positions |  |  | (4.9 | ) |  |  | 0.3 |  |  |  | (2.2 | ) |  |  | 0.1 |
Foreign taxes |  |  | (4.9 | ) |  |  | (1.5 | ) |  |  | (3.3 | ) |  |  | (1.1 | )
International provisions of the U.S. Tax Cuts and Jobs Act of 2017 |  |  | (0.8 | ) |  |  | (3.1 | ) |  |  | (1.1 | ) |  |  | (2.9 | )
Other, net |  |  | 1.9 |  |  |  | 2.5 |  |  |  | 0.8 |  |  |  | 0.8 |
Effective tax rate |  |  | 7.8 | % |  |  | 11.2 | % |  |  | 12.0 | % |  |  | 14.0 | %
On a quarterly basis, Teradyne evaluates the realizability of the deferred tax assets by jurisdiction and assesses the need for a valuation allowance. As of September 29, 2024, Teradyne believes that it will ultimately realize the deferred tax assets recorded on the condensed consolidated balance sheet. However, should Teradyne believe that it is more-likely-than-not that the deferred tax assets would not be realized, the tax provision would increase in the period in which Teradyne determined that the realizability was not likely. Teradyne considers the probability of future taxable income and historical profitability, among other factors, in assessing the realizability of the deferred tax assets. As of September 29, 2024, and December 31, 2023, Teradyne had $7.6 million and $18.6 million, respectively, of reserves for uncertain tax positions. The $11.0 million net decrease in reserves for uncertain tax positions is related to the audit settlements. As of September 29, 2024, Teradyne estimates that it is reasonably possible that the balance of unrecognized tax benefits may decrease approximately $0.7 million in the next twelve months because of a lapse of statutes of limitation. The estimated decrease relates to transfer pricing and U.S. federal and state research and development credits. Teradyne recognizes interest and penalties related to income tax matters in income tax expense. As of September 29, 2024, and December 31, 2023, $0.2 million and $1.3 million, respectively, of interest and penalties were accrued for uncertain tax positions. For the nine months ended September 29, 2024, and October 1, 2023, a benefit of $1.0 million and expense of $0.2 million, respectively, were recorded for interest and penalties related to income tax items. Teradyne qualifies for a tax holiday in Singapore by fulfilling the requirements of an agreement with the Singapore Economic Development Board under which certain headcount and spending requirements must be met. The tax savings due to the tax holiday for the nine months ended September 29, 2024, were $10.2 million, or $0.06 per diluted share. The tax savings due to the tax holiday for the nine months ended October 1, 2023, were $1.7 million, or $0.01 per diluted share. In November 2020, Teradyne entered into an agreement with the Singapore Economic Development Board which extended Teradyne's Singapore tax holiday under substantially similar terms to the agreement which expired on December 31, 2020. The new tax holiday is scheduled to expire on December 31, 2025. In the nine months ended September 29, 2024, Teradyne recognized a $57.5 million gain on the sale of the Device Interface Solutions business which resulted in $10.7 million of income tax expense that was recognized as a discrete expense during the period in which the gain occurred. On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. The IRA introduced a 15% alternative minimum tax based on the financial statement income of certain large corporations (“CAMT”), effective January 1, 2023. Teradyne currently does not expect the CAMT to have a material impact on its financial results. On December 15, 2022, the European Union ("EU") Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development ("OECD") Pillar Two Framework. The EU’s Pillar Two Directive effective dates are January 1, 2024, and January 1, 2025, for different aspects of the directive. On July 17, 2023, the OECD published Administrative Guidance proposing certain safe harbor rules that effectively extend certain effective dates to January 1, 2027. Certain EU Member States where Teradyne has a legal presence have recently enacted the directive and administrative guidance into their local tax legislation. Additionally, countries outside the EU where Teradyne has a legal presence have enacted similar language as the EU Members States in their local tax legislation. Teradyne is closely monitoring these developments and evaluating the potential financial impact on income tax expense. As of September 29, 2024, the effective tax rate was impacted by legislative changes that went into effect for Pillar Two in some of Teradyne's foreign jurisdictions, but it did not have a material impact on its financial statements.

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