v3.25.2
Income Taxes
 6 Months Ended
Jun. 30, 2025
Income Tax Disclosure [Abstract]  
Income Taxes
Note 11. Income Taxes
Three Months Ended June 30,Six Months Ended June 30,
2025202420252024
Income tax expense (benefit)$14 $18 $7 $(2)
Effective tax rate55.4 %(61.3)%7.6 %7.4 %
For the three and six months ended June 30, 2025, we recognized income tax expense of $14 million and $7 million, respectively. Our effective tax rate of 55.4% for the three months ended June 30, 2025, differed from the statutory income tax rate primarily due to the tax impact from the jurisdictional mix of projected income and losses in non-U.S. jurisdictions and the impacts of discrete tax expenses during the second quarter of 2025, including the remeasurement of certain deferred tax positions due to a foreign tax rate change. Our effective tax rate of 7.6% for the six months ended June 30, 2025, differed from the statutory income tax rate primarily due to the tax impact from the jurisdictional mix of projected income and losses in non-U.S. jurisdictions and the utilization of net operating losses and a valuation allowance release in the U.S., partially offset by the impacts of discrete tax expenses during the second quarter of 2025, including the remeasurement of certain deferred tax positions due to a foreign tax rate change.
For the three months ended June 30, 2024, we recognized income tax expense of $18 million, while for the six months ended June 30, 2024, we recognized an income tax benefit of $2 million. Our effective tax rate of (61.3)% for the three months ended June 30, 2024, differed from the statutory income tax rate primarily due to jurisdictional earnings mix of projected income in lower tax jurisdictions and losses in the U.S. and various foreign affiliates for which there was no tax benefit, as valuation allowances had been established. Our effective tax rate of 7.4% for the six months ended June 30, 2024, differed from the statutory income tax rate primarily due to the partial release of a valuation allowance attributable to the anticipated sale of our aqua business, which closed on July 9, 2024, and a benefit related to the recognition of certain state tax credits.
On July 4, 2025, the One Big Beautiful Bill Act (Act) was enacted into law in the U.S. The Act includes significant provisions, including tax cut extensions and modifications to the U.S. and international tax frameworks. We are currently evaluating the Act's expected impact on our consolidated results of operations and will recognize the related tax impacts, including on our U.S. valuation allowance position, in the period of enactment.
We were included in Eli Lilly and Company's (Lilly's) U.S. tax examinations by the Internal Revenue Service through the full separation date of March 11, 2019. Pursuant to the tax matters agreement we executed with Lilly in connection with our initial public offering (IPO), the potential liabilities or potential refunds attributable to pre-IPO periods in which Elanco was included in a Lilly consolidated or combined tax return remain with Lilly. The U.S. examination of tax years 2016 to 2018 began in 2019 and remains ongoing. Final resolution of certain matters is dependent upon several factors, including the potential for formal administrative proceedings.