Income Taxes

3 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

At the end of each interim period, we estimate a base effective tax rate that we expect for the full fiscal year based on our most recent forecast of pre-tax income, permanent book and tax differences and global tax planning strategies. We use this base rate to provide for income taxes on a year-to-date basis, excluding the effect of significant unusual items and items that are reported net of their related tax effects in the period in which they occur.

Our base rate reflects a change in the U.S. federal statutory rate from 35 percent to 21 percent resulting from the enactment of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) on December 22, 2017. The statutory tax rate for our fiscal year 2019 is 21 percent.

The effective tax rate was 33.5 percent in the three months ended December 31, 2018, compared to 179.4 percent in the three months ended December 31, 2017. The effective tax rate was higher than the U.S. statutory rate of 21 percent in the three months ended December 31, 2018, primarily because of the PTC investment adjustments without a corresponding tax benefit. The effective tax rate was higher than the U.S. statutory rate of 24.53 percent in the three months ended December 31, 2017, due to provisional tax expense ($479.7 million or 161.1 percent) resulting from the Tax Act.

As of December 31, 2018, the Company has completed its analysis of the impact of the Tax Act in accordance with SEC Staff Accounting Bulletin No. 118 ("SAB 118"). During fiscal year 2018, the Company recorded provisional expense of $104.4 million related to the revaluation of U.S. deferred tax assets and liabilities, and provisional expense of $395.8 million for the one-time transition tax liability on earnings of our foreign subsidiaries that were previously deferred from U.S. income tax. There were no adjustments to provisional amounts during the three months ended December 31, 2018.

The Tax Act includes a provision to tax global intangible low-tax income ("GILTI") of foreign subsidiaries. The FASB allows companies to adopt an accounting policy to either recognize deferred taxes for GILTI or treat as a tax cost in the year incurred. The Company has adopted an accounting policy to treat tax on GILTI as a tax cost in the year incurred.

Unrecognized Tax Benefits

The amount of gross unrecognized tax benefits was $20.1 million at December 31, 2018 and September 30, 2018, of which the entire amount would reduce our effective tax rate if recognized.

Accrued interest and penalties related to unrecognized tax benefits were $2.7 million and $2.5 million at December 31, 2018 and September 30, 2018, respectively. We recognize interest and penalties related to unrecognized tax benefits in the income tax provision.

We believe it is reasonably possible that the amount of gross unrecognized tax benefits could be reduced by up to $6.0 million in the next 12 months as a result of the resolution of tax matters in various global jurisdictions and the lapses of statutes of limitations. If all of the unrecognized tax benefits were recognized, the net reduction to our income tax provision, including the recognition of interest and penalties and offsetting tax assets, could be up to $5.6 million.

We conduct business globally and are routinely audited by the various tax jurisdictions in which we operate. We are no longer subject to U.S. federal income tax examinations for years before 2016 and are no longer subject to state, local and foreign income tax examinations for years before 2009.