Vertiv Holdings Co

The Company's effective tax rate was 35.2%,13.8%, and 54.1%, for the years ended December 31, 2024, 2023, and 2022, respectively. The effective rate in 2024 was primarily influenced by changes in tax incentives, offset by the net change in valuation allowance and the non-tax deductibility of the change in fair value of warrant liabilities. The effective rate in 2023 was primarily influenced by the net valuation allowance release offset by the non-tax deductibility of the change in fair value of warrant liabilities. The effective rate in 2022 was primarily influenced by the mix of income between the Company’s U.S. and non-U.S. operations, favorable tax rates and incentives in non-U.S. jurisdictions, taxes accrued on unremitted earnings, withholding taxes on cross-border payments, changes in valuation allowance for U.S. federal and state and non-US purposes, the global intangible low-taxed income (“GILTI”) provisions of the Tax Cuts and Jobs Act (“the Act”), the change in fair value of warrant liabilities, and changes in reserves for uncertain tax positions.

The GILTI provisions of the Act require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company has made the policy election to record any liability associated with GILTI in the period in which it is incurred.

Earnings (loss) before income taxes from continuing operations consists of the following:

(1)Certain of the Company’s Non-U.S. entities generate significant losses for which a valuation allowance is provided for and accordingly do not create a tax benefit.

The principal components of income tax expense (benefit) from continuing operations consists of the following:

Reconciliation of U.S. federal statutory taxes to the Company’s total income tax expense (benefit) from continuing operations consists of the following:

(1)Represents several adjustments, none of which are significant for separate disclosure.

The Company has tax holiday agreements in place in China, which expire in between 2024 and 2025. It is the Company’s intention to reapply for these holidays as they expire. We anticipate that we will continue to qualify for these holidays, but we will assess based on business conditions at the time of renewal.

As of December 31, 2024 and 2023, the Company has recognized $33.2 and $39.0, respectively, of net deferred income tax liabilities for U.S. income taxes, non-U.S. income taxes and foreign withholding taxes on outside basis differences for certain foreign subsidiaries with earnings that are not indefinitely reinvested.

The principal items that gave rise to deferred income tax assets and liabilities follow:

At December 31, 2023, the Company had utilized all available federal net operating losses. At December 31, 2024, the gross amount of the Company’s state net operating losses was $338.7, expiring at various times between 2025 and 2042 with some losses having an unlimited carryforward period. At December 31, 2024, the Company had $31.1 other federal tax credit carryforwards expiring between 2027 and 2038. At December 31, 2024, the Company had other immaterial state tax credit carryforwards expiring between 2029 and 2038.

The use of certain U.S. tax attributes as of December 31, 2024 is subject to an annual limitation due to the change in ownership of our stock in February 2020 as described in “Note 1 - Summary of Significant Accounting Policies”. There can be no assurance that trading in our shares will not affect another change in ownership under the Internal Revenue Code which could impose an additional limit on the use of our tax attributes.

At December 31, 2024, the Company’s foreign net operating losses that are available to offset future taxable income were $180.7. These foreign loss carryforwards will expire at various times beginning in 2025 with some losses having an unlimited carryforward period.

At December 31, 2024, the Company’s foreign capital loss carryforwards were $16.9. These foreign capital loss carryforwards have an unlimited carryforward period.

At December 31, 2024, the Company has non-U.S. tax credits generated in 2024 as a result of an internal restructuring within the Europe, Middle East & Africa region in the amount of $658.9 that are available until 2034.

Pursuant to the terms of the separation, Emerson agreed to indemnify the Company for all U.S. federal, state or local income taxes, as well as non-U.S. income taxes, that are attributable to any period prior to the separation. An indemnification receivable of $7.0 has been recorded in noncurrent other assets for the uncertain tax positions related to periods prior to the separation. The impact on the Company’s tax expense for changes in uncertain tax positions for periods prior to the separation (discussed below) will be offset by the Emerson indemnification, resulting in no net effect on the Company’s net income.

Following are changes in unrecognized tax benefits before considering recoverability of cross-jurisdictional tax credits (federal, state, and non-U.S.) and temporary differences. The amount of unrecognized tax benefits is not expected to significantly increase or decrease within the next 12 months.

The total amount of net unrecognized tax benefits that would affect income tax expense, if recognized in the Consolidated Financial Statements, is $106.8. In addition, an adjustment of $8.0 would result to other expense for reversal of the indemnification receivable. The Company accrues interest and penalties related to income taxes in income tax expense. As of December 31, 2024, 2023, and 2022, total accrued interest and penalties were $19.2, $19.0, and $18.0, respectively.

Eligible domestic subsidiaries file a consolidated U.S. Federal income tax return. Examinations by the U.S. Internal Revenue Service are complete through the December 1, 2016 date of separation with Emerson, with the limited exception of 2014. The status of state and non-U.S. tax examinations varies due to the numerous legal entities and jurisdictions in which the Company operates. As noted above, pursuant to the terms of the transactions, Emerson and E&I will indemnify the Company for certain tax assessments for periods prior to closing.

The change in the income tax valuation allowance is as follows:

For the year ended December 31, 2024, the Company recorded a net valuation allowance change primarily related establishment of a valuation allowance on certain non-US tax credits that was partially offset by a valuation allowance release related to certain U.S. federal foreign tax credits and certain non-US tax losses. Of the total $587.0 total movement, $633.4 was charged to income tax expense, with the remaining $46.4 reduction related to foreign currency translation recorded through Other Comprehensive Income. For the year ended December 31, 2023, the Company recorded a valuation allowance release of $103.4 primarily related to U.S. federal and state jurisdictions. At each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets.

In January 2025, the Organization for Economic Co-operation and Development ("OECD") issued administrative guidance related to Pillar Two Laws which will impact the Company's assessment of the realizability of certain deferred tax assets. The Company expects to have a discrete tax charge of approximately $40.0 in the period the guidance was issued.