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Income Taxes | 6 Months Ended
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Jun. 30, 2025
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES For the second quarter of 2025, we recorded income tax expense of $24 million on income before income taxes of $305 million. For the first six months of 2025, we recorded income tax expense of $37 million on income before income taxes of $436 million. Income tax expense for the three and six months ended June 30, 2025 includes net discrete tax benefits of $4 million and $5 million, respectively. For the second quarter of 2024, we recorded income tax expense of $60 million on income before income taxes of $133 million. For the first six months of 2024, we recorded income tax expense of $66 million on income before income taxes of $69 million. Income tax expense for the six months ended June 30, 2024 includes a net discrete tax benefit of $1 million. We record taxes based on overall estimated annual effective tax rates. The difference between our effective tax rate and the U.S. statutory rate of 21% for the three and six months ended June 30, 2025 is favorably impacted by gains recognized as a result of the sales of the OTR tire business and the Dunlop brand, which included certain associated intellectual property and other intangible assets, in jurisdictions where no taxes are recorded, net of losses in foreign jurisdictions in which no tax benefits are recorded, and the discrete items noted above. The difference between our effective tax rate and the U.S. statutory rate of 21% for the three and six months ended June 30, 2024 primarily relates to losses in foreign jurisdictions in which no tax benefits are recorded and the discrete items noted above. On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework, and the restoration of tax treatment for certain business provisions. We do not expect a material impact from OBBBA on our 2025 operating tax rates. We will continue to assess the impact on us as regulations develop in the future. The Organisation for Economic Co-operation and Development ("OECD") have published the Pillar Two model rules which adopt a global corporate minimum tax of 15% for multinational enterprises with average revenue in excess of €750 million. Certain jurisdictions in which we operate enacted legislation consistent with one or more of the OECD Pillar Two model rules effective in 2024. The model rules include minimum domestic top-up taxes, income inclusion rules, and undertaxed profit rules all aimed to ensure that multinational corporations pay a minimum effective corporate tax rate of 15% in each jurisdiction in which they operate. We do not expect the Pillar Two model rules to materially impact our annual effective tax rate i n 2025. However, we are continuing to evaluate the Pillar Two model rules and related legislation and their potential impact on future periods. We consider both positive and negative evidence when measuring the need for a valuation allowance. The weight given to the evidence is commensurate with the extent to which it may be objectively verified. Current and cumulative financial reporting results are a source of objectively verifiable information. We give operating results during the most recent three-year period a significant weight in our analysis. We perform scheduling exercises to determine if sufficient taxable income of the appropriate character exists in the periods required in order to realize our deferred tax assets with limited lives (such as tax loss carryforwards and tax credits) prior to their expiration. We also consider prudent tax planning strategies (including an assessment of their feasibility) to accelerate taxable income if required to utilize expiring deferred tax assets. A valuation allowance is not required to the extent that, in our judgment, positive evidence exists with a magnitude and duration sufficient to result in a conclusion that it is more likely than not that our deferred tax assets will be realized. At June 30, 2025 and December 31, 2024, we had approximately $1.4 billion and $1.3 billion, respectively, of U.S. federal, state and local net deferred tax assets, inclusive of valuation allowances totaling $36 million and $26 million, respectively, primarily for state tax loss carryforwards with limited lives. As of June 30, 2025, approximately $1.2 billion of these U.S. net deferred tax assets had unlimited lives and approximately $200 million had limited lives, and the majority do not start to expire until 2030. As of December 31, 2024, approximately $1.1 billion of these U.S. net deferred tax assets had unlimited lives and approximately $200 million had limited lives, including $24 million of foreign tax credits, and the majority do not start to expire until 2030. In the U.S., we have a cumulative loss for the three-year period ended June 30, 2025 primarily driven by non-recurring items such as rationalization charges, pension curtailments and settlements, one-time costs associated with the Goodyear Forward plan, and intangible asset impairments. In assessing our ability to utilize our net deferred tax assets, we primarily considered objectively verifiable information including the reduction in interest expense from debt repayment as a result of the sales of the OTR tire business and the Dunlop brand, which included certain associated intellectual property and other intangible assets, and future royalty income from foreign subsidiaries. In addition, we considered our current forecasts of future profitability in assessing our ability to realize our deferred tax assets as well as the impact of tax planning strategies. These forecasts include the impact of recent trends and various macroeconomic factors such as the impact of raw material, transportation, tariff, labor and energy costs on our profitability. Our tax planning strategies include accelerating income on cross border transactions, including sales of inventory or raw materials to our subsidiaries, reducing U.S. interest expense by, for example, repaying U.S. third-party debt and reducing intercompany loans through repatriating current year earnings of foreign subsidiaries, repatriation of certain foreign royalty income, and other financing transactions, all of which would increase our domestic profitability. We believe our forecasts of future profitability, including a reduction in interest expense from debt repayment as a result of the sales of the OTR tire business and the Dunlop brand, which included certain associated intellectual property and other intangible assets, provide us sufficient positive evidence to conclude that it is more likely than not that, at June 30, 2025, our U.S. net deferred tax assets will be fully utilized. However, macroeconomic factors such as raw material, transportation, tariff, labor and energy costs possess a high degree of volatility and can significantly impact our profitability. Our U.S. operating results for the quarter ended June 30, 2025 declined relative to prior periods. If our U.S. operating results continue to decline in the future, we may need to record a valuation allowance which could adversely impact our operating results. As such, we will closely monitor our U.S. operations and any tax law changes to assess the realizability of our U.S. deferred tax assets. At June 30, 2025 and December 31, 2024, we also had approximately $1.5 billion of foreign net deferred tax assets and related valuation allowances of approximately $1.3 billion and $1.2 billion, respectively. Our losses in various foreign taxing jurisdictions in recent periods represented sufficient negative evidence to require us to maintain a full valuation allowance against certain of these net foreign deferred tax assets. Most notably, in Luxembourg, we maintain a valuation allowance of approximately $1.0 billion on all of our net deferred tax assets. Each reporting period, we assess available positive and negative evidence and estimate if sufficient future taxable income will be generated to utilize these existing deferred tax assets. We do not believe that sufficient positive evidence required to release valuation allowances on our foreign deferred tax assets having a significant impact on our financial position or results of operations will exist within the next twelve months. For the six months ended June 30, 2025, changes to our unrecognized tax benefits did not, and for the full year of 2025 are not expected to, have a significant impact on our financial position or results of operations. We are open to examination in the United States from 2021 onward and in Germany from 2018 onward. Generally, for our remaining tax jurisdictions, years from 2020 onward are still open to examination. Following an audit by the Internal Revenue Service ("IRS"), we received a Notice of Proposed Adjustment ("NOPA") during the second quarter of 2025 related to an intercompany sale of certain intellectual property in 2021. The IRS proposes to disallow income recognition totaling $1.5 billion associated with this transaction. The federal tax charge related to that income recognition was fully offset by the utilization of $315 million of then-existing deferred tax assets, including tax loss carryforwards and foreign tax credits. We disagree with the IRS’s position as stated in the NOPA and plan to challenge the proposed adjustments through the established IRS administrative procedures. Based on the information currently available, we believe that it is more likely than not that our tax position will be sustained upon review; therefore, no changes have been made to our reserve for uncertain tax positions relating to the NOPA. The ultimate resolution of this matter is uncertain, and if the income recognition associated with the transaction is disallowed, we will not be able to use a portion of the deferred tax assets that we utilized to offset the related federal taxes and our operating results could be adversely impacted.

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