AES · 10-Q · 2026Q2 · Full report

Income Tax Rate Changes

AES CORP · 2026-08-04 · Importance 42 · Surprise 60 · No source text

The 2025 Act revised U.S. renewable-energy tax credits and taxation of certain foreign earnings, which AES said could materially affect future effective tax rates. Beginning January 1, 2026, the Act’s NCTI rules subject a portion of foreign earnings to current U.S. taxation, with a nominal reduced effective rate of 14% that may not be available to companies with U.S. net operating losses or insufficient taxable income. The Act also retroactively changed the interest-expense limitation beginning January 1, 2025 from 30% of tax-basis EBIT to interest income plus 30% of tax-basis EBITDA, which AES expects to increase current-period permitted deductions and reduce disallowed-interest carryforwards. AES reported $195 million of net deferred tax assets in certain Chilean businesses, primarily from non-expiring net operating losses, and said a reduction in projected taxable income could require a valuation allowance.

Key facts

• Income tax expense decreased $139 million, or 83%, to $28 million for the three months ended June 30, 2026 compared to $167 million for the three months ended June 30, 2025; the Company's effective tax rates were 6% and 428% for those periods, respectively. source
• Income tax benefit was $13 million for the six months ended June 30, 2026 compared to income tax expense of $184 million for the six months ended June 30, 2025; the Company's effective tax rates were (2)% and 1,082% for those six-month periods, respectively. source
• On January 5, 2026, OECD published side-by-side package to modify Pillar 2 intended to take effect Jan 1, 2026, excluding US-parented groups from Pillar 2 rules, subject to enactment in local jurisdictions source
• Certain AES Chilean businesses have recorded net deferred tax assets of $195 million relating primarily to net operating loss carryforwards source
• The 2025 Act retroactively amended limitation on deductibility of net interest expense beginning January 1, 2025 to be limited to interest income plus 30% of tax basis EBITDA source
• Income tax expense (benefit) in reconciliation is $(13) source

Impact estimates