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Income Taxes
 12 Months Ended
Dec. 31, 2024
Components of Income Tax Expense (Benefit), Continuing Operations [Abstract]  
Income Taxes INCOME TAXES
We generated profits of $49.8 million, $30.7 million and $39.7 million before income taxes in the U.S. for the years ended December 31, 2024, 2023 and 2022, respectively. We generated profits of $320.4 million, $53.5 million and $185.2 million before income taxes in non-U.S. jurisdictions for the years ended December 31, 2024, 2023 and 2022, respectively.
The components of our provision for income taxes are summarized as follows (in millions):

Years Ended December 31,
202420232022
Current income tax expense (benefit):
  
U.S.$11.5 $(30.3)$12.4 
Non-U.S.(16.9)34.1 22.8 
 (5.4)3.8 35.2 
Deferred income tax expense (benefit):  
U.S.(4.4)1.9 8.5 
Non-U.S.10.2 (788.3)(0.6)
 5.8 (786.4)7.9 
Total income tax expense (benefit)$0.4 $(782.6)$43.1 
 
Deferred Taxes

The components of deferred income tax assets and liabilities are summarized as follows (in millions):
December 31,
20242023
Deferred tax assets:
 
Net operating loss carryforwards$3,071.8 $3,308.9 
Property and equipment1,555.4 1,535.1 
Interest limitation carryforwards126.0 123.4 
Foreign tax credits16.4 44.7 
Employee benefits, including share-based compensation36.6 41.6 
Premiums on long-term debt4.0 6.0 
Other17.9 14.4 
Valuation allowance(3,971.3)(4,192.4)
Total deferred tax assets856.8 881.7 
Deferred tax liabilities(26.7)(26.8)
Net deferred tax asset$830.1 $854.9 
     
The realization of substantially all of our deferred tax assets is dependent upon generating sufficient taxable income during future periods in various jurisdictions in which we operate. We rely on projected taxable income from both current and future drilling contracts for the recognition of deferred tax assets. Realization of certain of our deferred tax assets is not assured. We recognize a valuation allowance for deferred tax assets when it is more-likely-than-not that the benefit from the deferred tax asset will not be realized. The amount of deferred tax assets considered realizable could increase or decrease in the near-term if our estimates of future taxable income change.
As of December 31, 2024, we had gross deferred tax assets of $3.1 billion relating to $13.5 billion of net operating loss ("NOL") carryforwards, $16.4 million of U.S. foreign tax credits (“FTCs”) and $126.0 million of interest limitation carryforwards, primarily related to the U.S., Luxembourg and the U.K., which can be used to reduce our income taxes payable in future years. NOL carryforwards, which were generated in various jurisdictions worldwide, include $13.1 billion that do not expire and $0.4 billion that will expire, if not utilized, between 2025 and 2034. Deferred tax assets for NOL carryforwards as of December 31, 2024 include $2.2 billion, $612.4 million, $78.0 million, $42.6 million and $39.8 million pertaining to NOL carryforwards in Luxembourg, the U.S., the U.K., Bermuda and Switzerland, respectively. The U.S. FTCs expire in 2025. Interest limitation carryforwards generally do not expire. Additionally, as a result of our emergence from bankruptcy, the utilization of certain U.S. deferred tax assets including, but not limited to, NOL carryforwards, FTCs, and interest limitation carryforwards is limited to $0.5 million annually.

We had a $4.0 billion and a $4.2 billion valuation allowance as of December 31, 2024 and 2023, respectively, on deferred tax assets relating to those assets for which we are not more likely than not to realize due to the inability to generate sufficient taxable income in the period prior to expiration and/or of the character necessary to use the benefit of the deferred tax assets. During the years ended December 31, 2024, 2023 and 2022, we recognized a deferred tax benefit of $8.5 million, a deferred tax benefit of $802.9 million and a deferred tax expense of $1.5 million, respectively, associated with changes in deferred tax asset valuation allowances. The deferred tax benefit in 2023 primarily related to a $799.5 million reduction of our valuation allowance due to changes in the balance of relevant positive and negative evidence considered when assessing the realization of our deferred tax assets in certain operating jurisdictions. After considering the balance of evidence, which included historical financial results, projected earnings, contract backlog, day rates and market outlook, we determined that sufficient positive evidence existed to conclude that this portion of the valuation allowance on deferred tax assets was no longer needed. We intend to continue maintaining a valuation allowance on a substantial portion of our deferred tax assets until there is sufficient evidence to support a reversal of such allowances. The timing and amount of future valuation allowance reductions are subject to future levels of contracting and profitability achieved.

Effective Tax Rate

Valaris Limited is domiciled and a resident for tax purposes in Bermuda. Our subsidiaries conduct operations and earn income in numerous countries and are subject to the laws of taxing jurisdictions within those countries. The income of our non-Bermuda subsidiaries is not subject to Bermuda taxation.

Income tax rates and taxation systems in the jurisdictions in which our subsidiaries conduct operations vary and our subsidiaries are frequently subjected to minimum taxation regimes. In some jurisdictions, tax liabilities are based on gross revenues, statutory deemed profits or other factors, rather than on net income, and our subsidiaries are frequently unable to realize tax benefits when they operate at a loss. Accordingly, during periods of declining profitability, our income tax expense may not decline proportionally with income, which could result in higher effective income tax rates. Furthermore, we will continue to incur income tax expense in periods in which we operate at a loss.
    
Our drilling rigs frequently move from one taxing jurisdiction to another to perform contract drilling services. In some instances, the movement of drilling rigs among taxing jurisdictions will involve the transfer of ownership of the drilling rigs among our subsidiaries. As a result of frequent changes in the taxing jurisdictions in which our drilling rigs are operated and/or owned, changes in profitability levels and changes in tax laws, our annual effective income tax rate may vary substantially from one reporting period to another.
Our consolidated effective income tax rate for the years ended December 31, 2024, 2023 and 2022, respectively, differs from the Bermuda statutory income tax rates as follows:
Years Ended December 31,
202420232022
Bermuda statutory income tax rate
— %— %— %
Non-Bermuda taxes
25.6 74.0 22.8 
Valuation allowance(2.3)(953.6)0.6 
Resolution of prior year items
(23.2)(49.9)(7.0)
Other— — 2.8 
Effective income tax rate0.1 %(929.5)%19.2 %

Our 2024 consolidated effective income tax rate includes discrete tax benefit of $85.8 million, primarily attributable to change in liabilities for unrecognized tax benefits associated with tax positions taken in prior years.

Our 2023 consolidated effective income tax rate includes discrete tax benefit of $42.0 million primarily attributable to changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years.

Our 2022 consolidated effective income tax rate includes $10.3 million associated with the impact of various discrete items, including $17.2 million income tax benefit associated with changes in liabilities for unrecognized tax benefits and resolution of other prior period tax matters, offset primarily by tax expense attributable to income associated with a contract termination.

Excluding the impact of the aforementioned discrete tax items, our consolidated effective income rates for the years ended December 31, 2024, 2023 and 2022 were 21.8%, (872.3)% and 73.6%, respectively. The changes in our consolidated effective income tax rate excluding discrete tax items during the three-year period result primarily from changes in the relative components of our earnings from the various taxing jurisdictions in which our drilling rigs are operated and/or owned and differences in tax rates in such taxing jurisdictions.

Unrecognized Tax Benefits

Our tax positions are evaluated for recognition using a more-likely-than-not threshold, and those tax positions requiring recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon effective settlement with a taxing authority that has full knowledge of all relevant information. 

As of December 31, 2024, we had $93.5 million of unrecognized tax benefits, of which $82.8 million was included in Other liabilities on our Consolidated Balance Sheet, and $10.7 million, which is associated with tax positions taken in tax years with NOL carryforwards, was presented as a reduction of deferred tax assets.

As of December 31, 2023, we had $201.4 million of unrecognized tax benefits, of which $171.7 million was included in Other liabilities on our Consolidated Balance Sheet, $29.7 million, which is associated with tax positions taken in tax years with NOL carryforwards, was presented as a reduction of deferred tax assets.
If recognized, $82.8 million of the $93.5 million unrecognized tax benefits as of December 31, 2024 would impact our consolidated effective income tax rate. A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2024, 2023 and 2022 (in millions) were as follows:

Years Ended December 31,
202420232022
Balance, beginning of period$201.4 $217.6 $235.1 
Settlements with taxing authorities(103.5)(41.8)(16.5)
Impact of foreign currency exchange rates(7.9)0.6 (9.7)
Increases as a result of tax positions taken during prior years
4.1 88.6 3.0 
Increases as a result of tax positions taken during the current year
2.7 13.4 11.2 
Lapse of applicable statutes of limitations(1.9)(73.6)(4.5)
Decreases as a result of tax positions taken during prior years
(1.4)(3.4)(1.0)
Balance, end of period$93.5 $201.4 $217.6 

Accrued interest and penalties totaled $45.5 million and $52.3 million as of December 31, 2024 and 2023, respectively, and were included in Other liabilities on our Consolidated Balance Sheets. We recognized a net benefit of $8.0 million, $35.4 million and $12.5 million associated with interest and penalties during the years ended December 31, 2024, 2023 and 2022, respectively. Interest and penalties are included in Current income tax expense in our Consolidated Statements of Operations.
 
Three of our subsidiaries file or previously filed U.S. tax returns and the tax returns of one or more of these subsidiaries is under exam for tax years 2014 and subsequent years. None of these examinations are expected to have a significant impact on the Company's consolidated results of operations and cash flows. Tax years as early as 2005 remain subject to examination in the other major tax jurisdictions in which we operated.

Statutes of limitations applicable to certain of our tax positions lapsed during the years ended December 31, 2024, 2023 and 2022, resulting in net income tax benefits, inclusive of interest and penalties, of $2.7 million, $77.3 million and $4.5 million, respectively.
  
Absent the commencement of examinations by tax authorities, statutes of limitations applicable to certain of our tax positions will lapse during 2025, but we do not expect these to have a material impact to our unrecognized tax benefits or effective income tax rate.
    
Tax Assessments

In February 2024, one of our Malaysian subsidiaries received an unfavorable court decision regarding a tax assessment for the 2012-2017 tax years totaling approximately MYR117.0 million (approximately $26.0 million converted at current period-end exchange rates), including a late payment penalty. In July 2024, we received a payment demand from the Malaysian tax authority for the full assessment amount. In order to further contest the assessment, we agreed to a seven-month payment plan which commenced in August 2024. As of December 31, 2024, we had made payments of approximately $18.0 million, which are included within Other assets in the Consolidated Balance Sheets, and had approximately $8.0 million of remaining payments. We have not recorded a liability for uncertain tax positions as of December 31, 2024 related to this assessment based on a more-likely-than-not threshold. We believe our tax returns are materially correct as filed and we will vigorously contest this assessment.
In December 2023, one of our Luxembourg subsidiaries received tax assessments for fiscal years 2019, 2020, 2021 and 2023. In February 2024, the Luxembourg tax authorities rescinded the portion of the assessment relating to 2023, resulting in a revised aggregate tax assessment of approximately €60.0 million (approximately $65.0 million converted at then-current exchange rates). We recorded a liability for uncertain tax positions for this amount during the fourth quarter of 2023 and contested the validity and amount of the assessments. In April 2024, we received a favorable decision from the Luxembourg tax authorities stating that the assessments for the 2019-2021 tax years are not enforceable. As a result, we reversed the uncertain tax position liability for the previously issued assessments and recognized a tax benefit of approximately $65.0 million in our Consolidated Statements of Operations for the year ended December 31, 2024.

During 2019, the Australian tax authorities issued aggregate tax assessments totaling approximately A$101.0 million (approximately $63.0 million converted at current period-end exchange rates) plus interest related to the examination of certain of our tax returns for the years 2011 through 2016. During the third quarter of 2019, we made a A$42.0 million payment (approximately $29.0 million at then-current exchange rates) to the Australian tax authorities to litigate the assessment. In December 2024, we reached a settlement agreement with the Australian tax authorities for A$4.0 million (approximately $2.0 million at current period-end exchange rates). As a result, we expect to receive a refund of A$38.0 million (approximately $24.0 million at current period-end exchange rates) in the first half of 2025. Accordingly, we released approximately $18.0 million of the uncertain tax position liability previously recognized and recognized a corresponding tax benefit in our Consolidated Statements of Operations for these assessments in the fourth quarter of 2024.

Undistributed Earnings
    
Dividend income received by Valaris Limited from its subsidiaries is exempt from Bermuda taxation. We do not provide deferred taxes on undistributed earnings of certain subsidiaries because our policy and intention is to reinvest such earnings indefinitely. As of December 31, 2024, the aggregate undistributed earnings of the subsidiaries for which we maintain a policy and intention to reinvest earnings indefinitely totaled $271.9 million. Should we make a distribution from these subsidiaries in the form of dividends or otherwise, we would be subject to additional income taxes. The unrecognized deferred tax liability related to these undistributed earnings was not practicable to estimate as of December 31, 2024.

Tax Legislation

The Organization for Economic Co-operation and Development issued Pillar Two rules introducing a new global minimum tax of 15% applied on a country-by-country basis effective on January 1, 2024. Certain jurisdictions have enacted new tax laws to align with the recommendations under Pillar Two while other jurisdictions have proposed or are actively considering changes to existing tax laws based on the new rules. The impact of the Pillar Two model rules which have been enacted to date was not significant to our consolidated financial statements for the year ended December 31, 2024.

Additionally, Bermuda enacted the Corporate Income Tax Act 2023 on December 27, 2023 (the “CIT Act”) which stipulates a tax on 15% of the net income of certain Bermuda constituent entities (as determined in accordance with the CIT Act, including after adjusting for any relevant foreign tax credits applicable to the Bermuda constituent entities). No tax is chargeable under the CIT Act until tax years starting on or after January 1, 2025. Deferred taxes of $27.5 million with an offsetting valuation allowance of $27.5 million were established as of December 31, 2023, upon enactment.

While we are still closely monitoring developments of these rules and evaluating the potential impact on future periods, we do not expect they will have a significant impact on our financial results in the near term.