Income Taxes

9 Months Ended

Sep. 30, 2021

INCOME TAXES

Tredegar recorded tax expense of $10.7 million pretax income from continuing operations of $47.3 million in the first nine months of 2021. Therefore, the effective tax rate in the first nine months of 2021 was 22.7%, compared to 26.2% in the first nine months of 2020. The quarterly effective tax rate is an estimate based on a proration of the components of the Company’s estimated annual effective tax rate and discrete items recorded during the first nine months of the year.

The significant differences between the U.S. federal statutory rate and the effective income tax rate for the nine months ended September 30, 2021 and 2020 are as follows:


(In thousands, except percentages)	2021				2020
Nine Months Ended September 30,	Amount		%		Amount		%
Income tax (benefit) expense at federal statutory rate	$	9,934	21.0	%	$	(6,639)	21.0	%
Foreign rate differences	4,787		10.1	%	2,772		(8.8)	%
U.S. Tax on Foreign Branch Income	4,124		8.7	%	656		(2.1)	%
State taxes, net of federal income tax benefit	829		1.8	%	(537)		1.7	%
Stock-based compensation	616		1.3	%	240		(0.8)	%
Non-deductible expenses	544		1.2	%	312		(1.0)	%
Valuation allowance for capital loss carry-forwards	74		0.2	%	61		(0.2)	%
Unremitted earnings from foreign operations	117		0.2	%	—		—	%
Tax contingency accruals and tax settlements	—		—	%	(148)		0.5	%
Tax impact of dividend received	(33)		(0.1)	%	—		—	%
Changes in estimates related to prior year tax provision	(501)		(1.1)	%	(1,001)		3.2	%
Research and development tax credit	(925)		(2.0)	%	(612)		1.9	%
Foreign tax incentives	(8,838)		(18.7)	%	(3,412)		10.8	%
Income tax expense (benefit) at effective income tax rate	$	10,728	22.7	%	$	(8,308)	26.2	%

Tredegar accrues U.S. federal income taxes on unremitted earnings of foreign subsidiaries where required. However, due to changes in the taxation of dividends under the U.S. Tax Cuts and Jobs Act of 2017, Tredegar will only record U.S. federal income taxes on unremitted earnings of its foreign subsidiaries where Tredegar cannot take steps to eliminate any potential tax on future distributions from its foreign subsidiaries.

The Brazilian federal statutory income tax rate is a composite of 34.0% (25.0% of income tax and 9.0% of social contribution on income). Terphane Ltda.’s manufacturing facility in Brazil is the beneficiary of certain income tax incentives that allow for a reduction in the statutory Brazilian federal income tax rate to 15.25% levied on the operating profit on certain of its products. The incentives have been granted for a 13-year period, from the commencement date of January 1, 2015. The benefit from the tax incentives was $8.8 million and $3.4 million in the first nine months of 2021 and 2020, respectively.

Tredegar and its subsidiaries file income tax returns in the U.S., various states, and jurisdictions outside the U.S. With exceptions for some U.S. states and non-U.S. jurisdictions, Tredegar and its subsidiaries are no longer subject to U.S. federal, state or non-U.S. income tax examinations by tax authorities for years before 2018.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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