v3.25.4
Income Taxes
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The components of income before income taxes and equity in earnings of unconsolidated affiliates are as follows:
Year Ended December 31,
(in millions)202520242023
Domestic$94 $214 $108 
Foreign1,4971,4551,351
$1,591$1,669$1,459

The components of income tax expense attributable to continuing operations are as follows:
Year Ended December 31,
(in millions) 202520242023
Current expense:
Federal and state
$49$44$21 
Foreign383 386 349 
432 430 370 
Deferred (benefit) expense:
Federal and state(132)(116)(236)
Foreign(48)(13)(33)
(180)(129)(269)
$252 $301 $101 
The differences between the Company’s consolidated income tax expense attributable to continuing operations and the expense computed at the United States statutory income tax rate of 21% were as follows:

Year Ended December 31,
(in millions)2025
Federal income tax expense at statutory rate$334 21.0 %
Foreign tax effects23 1.4 %
Effect of cross-border tax laws
Foreign Derived Intangible Income ("FDII")(57)(3.6)%
Foreign earnings subject to US tax, net of related foreign tax credits(56)(3.5)%
Change in unrecognized tax benefits11 0.7 %
Other(3)(0.2)%
$252 15.8 %

Year Ended December 31,
(in millions)20242023
Federal income tax expense at statutory rate$351 $306 
State and local income taxes, net of federal effect9 16 
Research and development(28)(25)
United States taxes recorded on foreign earnings(*)(79)(41)
Tax contingencies14 17 
Foreign Derived Intangible Income (“FDII”)(56)(53)
Foreign rate differential87 45 
Equity compensation3 — 
Valuation Allowance Release— (102)
Basis Difference Reversal— (61)
Other— (1)
$301 $101 
(*) Includes impact of GILTI, and other U.S. taxes on foreign earnings.

The Company's effective income tax rate was 15.8%, 18.0%, and 6.9% for the years ending December 31, 2025, 2024 and 2023, respectively. The Company's effective income tax rate for the year ended December 31, 2025 was favorably impacted due to changes in the geographical mix of earnings amongst the United States and foreign tax jurisdictions, compared to the Company's effective income tax rate for the year ended December 31, 2024.

The Company's effective income tax rate for the year ended December 31, 2023, was favorably impacted due to the completion of an internal legal entity restructuring that resulted in a benefit of $125 million. Historically, the Company recorded deferred tax assets related to certain foreign tax credits, and a full valuation allowance in relation to these foreign tax credits was established as it was not expected the credits would be utilized prior to expiration. During 2023, the Company decided it was reasonably possible that these foreign tax credits will be utilized and therefore recorded a tax benefit of $64 million related to the valuation allowance release and established related uncertain tax positions. Additionally, due to the restructuring the Company also reversed a deferred tax liability of $61 million due to a basis difference that was recovered in a tax-free manner. The effective tax rate for the year ended December 31, 2023 was also favorably impacted by a reversal of uncertain tax positions relating to tax credit carryforwards in the amount of $21 million due to an audit settlement.

On July 4, 2025, the U.S. government enacted the One Big Beautiful Bill Act ("OBBBA"), which includes several changes to U.S. federal income tax law, including the temporary and permanent extension, of expiring provisions of the Tax Cuts and Jobs Act of 2017. The impacts of the OBBBA did not have a material impact on the 2025 consolidated financial statements, however the Company will continue to evaluate impacts to future periods.
On December 12, 2022, the European Union member states agreed to implement the Organization for Economic Co-operation and Development’s (“OECD”) Pillar Two global corporate minimum tax, which establishes a 15% minimum effective tax rate for multinational enterprises with consolidated revenues of at least €750 million. Certain components of Pillar Two became effective in various jurisdictions beginning in 2024. The Company has continued to evaluate the effects of Pillar Two through the end of 2025 and concluded that its adoption did not have a material impact on the Company's consolidated financial statements for the periods presented. On January 5, 2026, the OECD Inclusive Framework released Administrative Guidance introducing a "side-by-side" safe harbor regime, under which U.S. parented multinational groups may be excluded from Pillar Two's Income Inclusion Rule ("IIR") and Undertaxed Profits Rule ("UTPR"), in recognition of the U.S. tax system's existing minimum tax framework. The Company will continue to monitor and evaluate this administrative guidance in the context of jurisdictions that adopt it. Based on the Company's current analysis, this guidance does not change the Company's conclusion regarding the absence of a material impact for the current year.

Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $6,689 million as of December 31, 2025. The Company does not consider any of its foreign earnings as indefinitely reinvested.

The income tax effects of temporary differences from continuing operations that give rise to significant portions of deferred income tax assets (liabilities) are presented below:
December 31,
(in millions)
20252024
Deferred income tax assets:
Net operating loss and other loss carryforwards$193 $176 
Tax credit carryforwards230 292 
Accrued expenses and unearned income287 106 
Employee benefits169 180 
U.S. interest expense limitation65 93 
Foreign exchange on debt instruments106 — 
Other85 86 
Total deferred income tax assets1,135 933 
Valuation allowance for deferred income tax assets(206)(196)
Total deferred income tax assets (net of valuation allowance)929 737 
Deferred income tax liabilities:
Amortization and depreciation(644)(545)
Foreign exchange on debt instruments— (104)
Other(106)(90)
Total deferred income tax liabilities(750)(739)
Net deferred income tax assets (liabilities)$179 $(2)

During the year ended December 31, 2025, the net deferred income tax assets increased primarily due to foreign exchange revaluation of debt instruments.

The Company had federal, state and local, and foreign tax loss carryforwards and tax credits, the tax effect of which was $501 million as of December 31, 2025. Of this amount, $38 million has an indefinite carryforward period, and the remaining $463 million expires at various times beginning in 2026. Some of the federal losses are subject to limitations under the Internal Revenue Code, however, management expects these losses to be utilized during the carryforward periods.

In the year ended December 31, 2025, the Company increased its valuation allowance by $10 million to $206 million as of December 31, 2025 from $196 million as of December 31, 2024. The valuation allowance increased primarily due to current year state tax expenses on foreign exchange revaluations on debt instruments offset by use of U.S. state net operating losses.
A reconciliation of the beginning and ending amount of gross unrecognized income tax benefits is presented below:
Year Ended December 31,
(in millions)202520242023
Balance as of January 1$146 $140 $122 
Additions based on tax positions related to the current year15 15 53 
Additions for income tax positions of prior years5 17 8 
Impact of changes in exchange rates2 (2)1 
Settlements with tax authorities(3)(1)(6)
Reductions for income tax positions of prior years(4)(18)(25)
Reductions due to the lapse of the applicable statute of limitations(7)(5)(13)
Balance as of December 31$154 $146 $140 

As of December 31, 2025, the Company had total gross unrecognized income tax benefits of $136 million associated with over 100 jurisdictions in which the Company conducts business that, if recognized, would reduce the Company’s effective income tax rate.

The Company’s policy for recording interest and penalties relating to uncertain income tax positions is to record them as a component of income tax expense in the accompanying consolidated statements of income. In the years ended December 31, 2025, 2024 and 2023, the amount of interest and penalties recorded as an addition to income tax expense in the accompanying consolidated statements of income was $3 million, $6 million and $— million, respectively. As of December 31, 2025, and 2024, the Company had accrued approximately $29 million and $26 million, respectively, of interest and penalties.

The Company conducts business globally and, as a result, files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The following table summarizes the tax years that remain open for examination by tax authorities in the most significant jurisdictions in which the Company operates:

United States
2022-2024
India
2006-2025
Japan
2019-2024
United Kingdom
2023-2024
Switzerland
2022-2024
Singapore
2019-2024

In certain of the jurisdictions noted above, the Company operates through more than one legal entity, each of which has different open years subject to examination. The table above presents the open years subject to examination for the most material of the legal entities in each jurisdiction. Additionally, it is important to note that tax years are technically not closed until the statute of limitations in each jurisdiction expires. In the jurisdictions noted above, the statute of limitations can extend beyond the open years subject to examination.

Due to the geographic breadth of the Company’s operations, numerous tax audits may be ongoing throughout the world at any point in time. Income tax liabilities are recorded based on estimates of additional income taxes that may be due upon the conclusion of these audits. Estimates of these income tax liabilities are made based upon prior experience and are updated in light of changes in facts and circumstances. However, due to the uncertain and complex application of income tax regulations, it is possible that the ultimate resolution of audits may result in liabilities that could be materially different from these estimates. In such an event, the Company will record additional income tax expense or income tax benefit in the period in which such resolution occurs.
The components of income taxes paid, net of refunds (inclusive of withholding taxes), are presented below:
(in millions)Year Ended December 31, 2025
United Kingdom$105 
Singapore47 
Japan37 
India28 
Other178 
Total income taxes paid, net of refunds (inclusive of withholding taxes)$395