Income Taxes

12 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Selected income tax data (in millions):

	2021		2020		2019
Components of income before income taxes:
United States	$	885.1	$	556.2	$	280.8
Non-United States	641.1		579.9		620.2
Total	$	1,526.2	$	1,136.1	$	901.0

Components of the income tax provision:
Current:
United States	$	149.6	$	68.1	$	105.6
Non-United States	190.7		96.6		112.1
State and local	25.7		13.9		16.5
Total current	366.0		178.6		234.2
Deferred:
United States	(154.7)		(32.8)		(27.0)
Non-United States	(19.0)		(24.7)		(0.1)
State and local	(10.4)		(8.2)		(1.9)
Total deferred	(184.1)		(65.7)		(29.0)
Income tax provision	$	181.9	$	112.9	$	205.2
Total income taxes paid	$	329.3	$	187.9	$	293.3

Effective Tax Rate Reconciliation

The reconciliation between the U.S. federal statutory rate and our effective tax rate was:

	2021		2020		2019
Statutory tax rate	21.0	%	21.0	%	21.0	%
State and local income taxes	1.4		0.8		0.1
Non-United States taxes	(3.8)		(5.0)		(4.8)
Repatriation of foreign earnings	0.9		1.3		2.8
Foreign-derived intangible income	(2.8)		(1.0)		(1.6)
Settlements with taxing authorities	(1.0)		(0.2)		—
Sensia formation	0.1		(1.1)		—
Change in valuation allowance(a)	(1.7)		(2.7)		7.6
Share-based compensation	(1.1)		(1.9)		(0.9)
Research and development tax credit	(0.6)		(1.1)		(1.2)
Other	(0.5)		(0.2)		(0.2)
Effective income tax rate	11.9	%	9.9	%	22.8	%

(a) During fiscal year 2021, we reversed our valuation allowance against deferred tax assets associated with the change in fair value of the PTC Shares. This resulted in a decrease to the effective tax rate of 1.7% and no remaining valuation allowance related to PTC Shares, as described further in the table below.

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 has been extended to expire in 2032. The tax benefit attributable to these programs was $61.2 million ($0.52 per diluted share) in 2021, $59.1 million ($0.51 per diluted share) in 2020 and $55.1 million ($0.46 per diluted share) in 2019.

Deferred Taxes

The tax effects of temporary differences that give rise to our net deferred income tax assets (liabilities) were (in millions):

	2021		2020
Deferred income tax assets:
Compensation and benefits	$	41.7	$	6.0
Inventory	12.8		10.5
Returns, rebates and incentives	37.5		34.5
Retirement benefits	153.1		306.8
Environmental remediation and other site-related costs	22.8		23.8
Share-based compensation	18.5		18.6
Other accruals and reserves	250.2		68.4
Investments	—		31.6
Net operating loss carryforwards	130.4		31.1
Tax credit carryforwards	20.3		17.3
Capital loss carryforwards	15.3		10.8
Other	23.7		16.8
Subtotal	726.3		576.2
Valuation allowance	(32.6)		(58.0)
Net deferred income tax assets	693.7		518.2
Deferred income tax liabilities:
Property	(43.7)		(48.0)
Intangible assets	(160.5)		(25.3)
Investments	(64.3)		—
Unremitted earnings of foreign subsidiaries	(42.0)		(28.3)
Other	(2.3)		(1.0)
Deferred income tax liabilities	(312.8)		(102.6)
Total net deferred income tax assets	$	380.9	$	415.6

We believe it is more likely than not that we will realize our deferred tax assets through the reduction of future taxable income, other than for the deferred tax assets reflected below.

Tax attributes and related valuation allowances at September 30, 2021 were (in millions):

Tax attributes and related valuation allowances	Tax Benefit Amount		Valuation Allowance		Carryforward Period Ends
Non-United States net operating loss carryforward	$	6.6	$	6.2	2022	-	9/30/2030
Non-United States net operating loss carryforward	36.5		3.2		Indefinite
Non-United States capital loss carryforward	15.3		15.3		Indefinite
United States credit carryforward	9.4		1.2		2030	-	2041
United States net operating loss carryforward	19.4		—		2022	-	2037
United States net operating loss carryforward	50.7		—		Indefinite
State and local net operating loss carryforward	17.2		1.2		2022	-	2038
State tax credit carryforward	10.9		—		2022	-	2035
Subtotal	166.0		27.1
Other deferred tax assets	5.5		5.5		Indefinite
Total	$	171.5	$	32.6

Unrecognized Tax Benefits

A reconciliation of our gross unrecognized tax benefits, excluding interest and penalties, is as follows (in millions):

	2021		2020		2019
Gross unrecognized tax benefits balance at beginning of year	$	25.5	$	19.9	$	20.1
Additions based on tax positions related to the current year	0.1		—		—
Additions based on tax positions related to prior years	0.4		5.6		—
Reductions based on tax positions related to prior years	—		—		—
Reductions related to settlements with taxing authorities	(18.1)		—		—
Reductions related to lapses of statute of limitations	(3.6)		—		(0.2)
Effect of foreign currency translation	—		—		—
Gross unrecognized tax benefits balance at end of year	$	4.3	$	25.5	$	19.9

The amount of gross unrecognized tax benefits that would reduce our effective tax rate if recognized was $4.3 million, $25.5 million and $19.9 million at September 30, 2021, 2020 and 2019, respectively.

Accrued interest and penalties related to unrecognized tax benefits were $1.5 million and $4.0 million at September 30, 2021 and 2020, respectively. We recognize interest and penalties related to unrecognized tax benefits in the income tax provision. Benefits (expense) recognized were $2.5 million, ($0.7) million and ($0.8) million in 2021, 2020 and 2019, respectively.

We believe it is reasonably possible that the amount of gross unrecognized tax benefits could be reduced by up to $4.2 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 $5.7 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 2018 and are no longer subject to state, local and non-U.S. income tax examinations for years before 2014.

Income tax liabilities of $264.8 million and $296.0 million related to the U.S. transition tax under the Tax Act that are payable greater than 12 months from September 30, 2021, and 2020, respectively, are recorded in other liabilities in the Consolidated Balance Sheet.