v3.25.1
Income Taxes
 12 Months Ended
Mar. 31, 2025
Income Tax Disclosure [Abstract]  
19. INCOME TAXES
19. INCOME TAXES
We are subject to Canadian and U.S. federal, state, and local income taxes as well as other foreign income taxes. The domestic (Canada) and foreign components of our income from continuing operations before income tax provision (and after removing our equity in net income of non-consolidated affiliates) are as follows.
in millions
Fiscal 2025
Fiscal 2024
Fiscal 2023
Domestic (Canada)$92 $73 $61 
Foreign (all other countries)747 741 729 
Pre-tax income before equity in net income of non-consolidated affiliates
$839 $814 $790 
The components of our income tax provision are as follows.
in millions
Fiscal 2025
Fiscal 2024
Fiscal 2023
Current provision:
Domestic (Canada)$26 $15 $3 
Foreign (all other countries)160 183 189 
Total current$186 $198 $192 
Deferred provision:
Domestic (Canada)$(61)$13 $9 
Foreign (all other countries)34 7 (54)
Total deferred$(27)$20 $(45)
Income tax provision$159 $218 $147 
The reconciliation of the Canadian statutory tax rates to our effective tax rates are shown below. 
in millions, except percentages
Fiscal 2025
Fiscal 2024
Fiscal 2023
Pre-tax income before equity in net income of non-consolidated affiliates
$839 $814 $790 
Canadian statutory tax rate25 %25 %25 %
Provision at the Canadian statutory rate$210 $204 $198 
Increase (decrease) for taxes on income (loss) resulting from:
Exchange translation items17 5 9 
Exchange remeasurement of deferred income taxes(7)1 (4)
Change in valuation allowances(55)12 (36)
Tax credits (35)(36)(36)
Expense (income) items not subject to tax
9 (9)(13)
State tax expense, net(1)(2)3 
Enacted tax rate changes— 1 3 
Tax rate differences on foreign earnings48 36 19 
Uncertain tax positions(24)19 3 
Prior year adjustments(7)(18)(13)
Income tax settlements7 — — 
Non-deductible expenses and other, net(3)5 14 
Income tax provision$159 $218 $147 
Effective tax rate19 %27 %19 %
Our effective tax rate differs from the Canadian statutory rate for fiscal 2025 primarily due to the following factors: the results of operations taxed at foreign statutory tax rates that differ from the 25% Canadian tax rate, including withholding taxes; changes to the Brazilian real foreign exchange rate; changes in valuation allowances; the availability of tax credits; and the reversal of uncertain tax positions.
On December 29, 2023, Brazil enacted legislation, effective as of January 1, 2024, that provides that certain tax incentives in Brazil are now subject to corporate income tax and social contribution on gross revenue. Consequently, the company did not consider the deduction of tax incentives for purposes of determining income tax in the fourth quarter of fiscal 2024. The company recorded an income tax deduction for incentives of $13 million and $15 million in fiscal 2024 and 2023, respectively.
We earn tax credits in a number of the jurisdictions in which we operate. These are primarily composed of foreign tax credits in Canada of $18 million, empire zone credits in New York of $3 million, and R&D credits in the U.S. of $10 million. The impact on our income tax provision of credits during fiscal 2025 was a benefit of $35 million. However, legislation enacted in New York state on March 31, 2014, established a zero percent statutory income tax rate for manufacturers. As a result, the current year empire zone credits in New York are offset with a corresponding valuation allowance of $3 million.
Deferred Income Taxes
Deferred income taxes recognize the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the carrying amounts used for income tax purposes as well as the impact of available net operating loss and tax credit carryforwards. These items are stated at the enacted tax rates that are expected to be in effect when taxes are actually paid or recovered.
Our deferred income tax assets and deferred income tax liabilities are as follows.
 March 31,
in millions20252024
Deferred income tax assets:
Provisions not currently deductible for tax purposes$347 $365 
Tax losses/benefit carryforwards, net787 847 
Depreciation and amortization91 102 
Other assets38 38 
Total deferred income tax assets1,263 1,352 
Less: valuation allowance(628)(696)
Net deferred income tax assets$635 $656 
Deferred income tax liabilities:
Depreciation and amortization$478 $542 
Inventory valuation reserves163 130 
Monetary exchange gains, net25 24 
Other liabilities76 70 
Total deferred income tax liabilities$742 $766 
Net deferred income tax liabilities
$107 $110 

ASC 740 requires that we reduce our deferred income tax assets by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that all or a portion of a deferred tax asset will not be realized. After consideration of all evidence, both positive and negative, management concluded that it is more likely than not that we will be unable to realize a portion of our deferred tax assets and that valuation allowances of $628 million and $696 million were necessary as of March 31, 2025, and 2024, respectively.
We continue to maintain valuation allowances in Canada and certain foreign jurisdictions primarily related to tax losses where we believe it is more likely than not that we will be unable to utilize those losses. The following table summarizes changes in the valuation allowances.
in millionsBalance at Beginning of PeriodDeductionsAdditionsBalance at End of Period
Fiscal 2025
$696 (88)$20 $628 
Fiscal 2024
711 (28)13 696 
Fiscal 2023
763 (57)5 711 

During fiscal 2025, after considering all available evidence, we released a portion of the Canadian valuation allowance based on current results and the expectation of future profitability as a result of term loan refinancing which decreased interest expense in Canada, resulting in an income tax benefit of $74 million. Also during fiscal 2025, after considering all available evidence, we recorded a valuation allowance for Italy based on current results and the expectation of future losses, resulting in an income tax expense of $10 million. During fiscal 2023, after considering all available evidence, we released a full valuation allowance on temporary items and tax attributes of legacy Aleris US entities in certain separate filer states and unitary filer states that require combined or separate reporting, resulting in an income tax benefit of $10 million. Positive evidence included a recent history of three-year cumulative earnings as of March 31, 2023, and forecasted taxable earnings based on operations. We also released a full valuation allowance on temporary items and tax attributes of Aleris Aluminum (Zhenjiang) Co. Ltd. based on current results and the expectation of future profitability, resulting in an income tax benefit of $29 million.
It is reasonably possible that our estimates of future taxable income may change within the next 12 months, resulting in a change to the valuation allowance in one or more jurisdictions.
As of March 31, 2025, we had net operating loss carryforwards of approximately $635 million (tax effected) and tax credit carryforwards of $152 million, which will be available to offset future taxable income and tax liabilities. The carryforwards began expiring in fiscal 2023. As of March 31, 2025, valuation allowances of $431 million, $102 million and $95 million had been recorded against net operating loss carryforwards, tax credit carryforwards, and other deferred tax assets, respectively, where it appeared more likely than not that such benefits will not be realized. The net operating loss carryforwards are predominantly in Canada, the U.S., Germany, and Italy.
As of March 31, 2024, we had net operating loss carryforwards of approximately $683 million (tax effected) and tax credit carryforwards of $164 million, which will be available to offset future taxable income and tax liabilities. The carryforwards began expiring in fiscal 2024, with some amounts being carried forward indefinitely. As of March 31, 2024, valuation allowances of $485 million, $115 million, and $96 million had been recorded against net operating loss carryforwards, tax credit carryforwards, and other deferred tax assets, respectively, where it appeared more likely than not that such benefits will not be realized. The net operating loss carryforwards are predominantly in Canada, the U.S., Germany, China, and Italy.
Although realization is not assured, management believes it is more likely than not that all the remaining net deferred tax assets will be realized. In the near term, the amount of deferred tax assets considered realizable could be reduced if we do not generate sufficient taxable income in certain jurisdictions.
As of March 31, 2025, we had cumulative earnings of approximately $4 billion for which we had not provided Canadian income tax or withholding taxes because we consider them to be indefinitely reinvested. We acknowledge that we would need to accrue and pay taxes should we decide to repatriate cash and short-term investments generated from earnings of our foreign subsidiaries that are considered indefinitely reinvested. Except for those jurisdictions where we have already distributed and paid taxes on the earnings, we have reinvested and expect to continue to reinvest undistributed earnings of foreign subsidiaries indefinitely. Cash and cash equivalents held by foreign subsidiaries that are indefinitely reinvested are used to cover expansion and short-term cash flow needs of such subsidiaries. The amounts considered indefinitely reinvested would be subject to possible Canadian taxation only if remitted as dividends. However, due to our valuation allowance position of $414 million in Canada, in excess of $308 million of net operating loss carryforwards, exempt surpluses for Canadian tax purposes, $13 million of tax credits, and other deferred tax assets of $93 million, a portion of the cumulative earnings would not be taxed if distributed. Due to the complex structure of our international holdings and the various methods available for repatriation, quantification of the deferred tax liability, if any, associated with these undistributed earnings is not practicable.
Tax Uncertainties
As of March 31, 2025, and 2024, the total amount of unrecognized benefits that, if recognized, would affect the effective income tax rate in future periods based on anticipated settlement dates is $68 million and $80 million, respectively.
Tax authorities continue to examine certain other of our tax filings for the fiscal year ended March 31, 2005, and the fiscal years ended March 31, 2013, through March 31, 2020. Our reserves for unrecognized tax benefits, as well as reserves for interest and penalties, are expected to decrease in the next 12 months as a result of further settlement of audits, judicial decisions, the filing of amended tax returns, or the expiration of statutes of limitations. With few exceptions, tax returns for all jurisdictions for all tax years before 2005 are no longer subject to examination by taxing authorities.
Our policy is to record interest and penalties related to unrecognized tax benefits in income tax provision on our consolidated statements of operations. As of March 31, 2025, 2024, and 2023, we accrued for interest and penalties of $7 million, $9 million, and $9 million, respectively. During fiscal 2025, we recognized tax benefit of $2 million related to changes in accrued interest and penalties. During fiscal 2024 and fiscal 2023, we had no tax expense or benefit related to changes in accrued interest and penalties. The main driver of the benefit realized in fiscal 2025 was the release of a number of uncertain tax positions due to settlements and statute expirations.
The following table summarizes the changes in unrecognized tax benefits. 
in millions
Fiscal 2025
Fiscal 2024
Fiscal 2023
Beginning balance of unrecognized tax benefits$80 $73 $71 
Additions based on tax positions related to the current period5 9 7 
Additions based on tax positions of prior years(1)
6 12 28 
Reductions based on tax positions of prior years (2)
(17)(4)(32)
Settlements (3)
(6)(10)— 
Foreign exchange— — (1)
Ending Balance of unrecognized tax benefits$68 $80 $73 
_________________________ 
(1)Additions based on tax positions of prior years in fiscal year 2023 includes $19 million for Novelis Germany.
(2)Reductions based on tax positions of prior years in fiscal 2025 includes $12 million for Novelis Germany as a result of tax assessments for fiscal 2014 through fiscal 2016 audit and corresponding appeals and mutual agreement procedures filed. Reductions based on tax positions of prior years in fiscal 2023 includes $24 million for positions of Aleris Germany for years prior to the acquisition of Aleris.
(3)Settlements in fiscal 2025 includes $3 million for Germany as a result of tax assessments for fiscal 2013 through 2016 audit. Settlements in fiscal 2024 includes $10 million principal reduction for Aleris Germany as a result of audit settlements for years prior to the acquisition of Aleris.
Income Taxes Payable
Our accompanying consolidated balance sheets include income taxes payable, net of $64 million and $131 million as of March 31, 2025, and 2024, respectively. Of these amounts, $48 million and $80 million are reflected in accrued expenses and other current liabilities as of March 31, 2025, and 2024, respectively.