Income Taxes

6 Months Ended

Mar. 31, 2020

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.

The effective tax rate was 22.4 percent and 11.3 percent in the three and six months ended March 31, 2020, respectively, compared to 14.0 percent and 18.5 percent in the three and six months ended March 31, 2019. The effective tax rate was higher than the U.S. statutory rate of 21 percent in the three months ended March 31, 2020, primarily due to PTC investment adjustments offset by favorable discrete tax items. The effective tax rate was lower than the U.S. statutory rate of 21 percent in the six months ended March 31, 2020, primarily due to PTC investment adjustments offset by tax benefits recognizable upon the formation of the Sensia joint venture, excess income tax benefits of share-based compensation and other favorable discrete tax items. The effective tax rate was lower than the U.S. statutory rate of 21 percent in the three months ended March 31, 2019, primarily because of PTC investment adjustments. The effective rate was lower than the U.S. statutory rate of 21 percent in the six months ended March 31, 2019 primarily because we benefited from lower non-U.S. tax rates.

Income tax liabilities of $296.0 million and $327.2 million related to the U.S. transition tax under the Tax Act that are payable greater than 12 months from March 31, 2020, and September 30, 2019, respectively, are recorded in Other Liabilities in the Consolidated Balance Sheet.

We operate in certain non-U.S. tax jurisdictions under government-sponsored tax incentive programs, which may be extended if certain additional requirements are met. The program which generates the primary benefit will expire in 2032.

Unrecognized Tax Benefits

The amount of gross unrecognized tax benefits was $25.6 million and $19.9 million at March 31, 2020 and September 30, 2019, respectively, of which the entire amount would reduce our effective tax rate if recognized.

Accrued interest and penalties related to unrecognized tax benefits were $3.7 million and $3.3 million at March 31, 2020, and September 30, 2019, 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 $24.1 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 $25.7 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.