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Income Taxes
 12 Months Ended
Sep. 30, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Provision for Income Taxes
The provision (benefit) for income taxes the years ended September 30 consisted of:
(Millions of dollars)202120202019
Current:
Federal$102 $(50)$235 
State and local, including Puerto Rico46 47 41 
Foreign290 400 300 
$438 $397 $576 
Deferred:
Domestic$(286)$(184)$(577)
Foreign(2)(101)(56)
(288)(286)(633)
Income tax provision (benefit)$150 $111 $(57)
The components of Income Before Income Taxes for the years ended September 30 consisted of:
(Millions of dollars)202120202019
Domestic, including Puerto Rico$133 $(489)$799 
Foreign2,109 1,474 377 
Income Before Income Taxes$2,242 $985 $1,176 
U.S. tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the "Act"), was enacted on December 22, 2017. The Act reduced the U.S. federal corporate tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and created new taxes on certain foreign-sourced earnings. The Act subjects a U.S. shareholder to tax on global intangible low-taxed income ("GILTI") earned by certain foreign subsidiaries. The Company has elected to account for its GILTI tax due as a period expense in the year the tax is incurred.
During fiscal year 2019, the Company finalized its accounting for the income tax effects of the Act and recognized additional tax benefit of $50 million in 2019 as a result of this legislation within Income tax provision (benefit). During fiscal year 2019, the Company also changed its assertion with respect to historical unremitted foreign earnings, which resulted in a total tax benefit of $138 million, of which $67 million is related to the tax legislation benefit previously recorded, and is included as a component of Income tax provision (benefit) in fiscal 2019. The Company asserts indefinite reinvestment for all historical unremitted foreign earnings as of September 30, 2021.
Unrecognized Tax Benefits
The table below summarizes the gross amounts of unrecognized tax benefits without regard to reduction in tax liabilities or additions to deferred tax assets and liabilities if such unrecognized tax benefits were settled. The Company believes it is reasonably possible that the amount of unrecognized benefits will change due to one or more of the following events in the next twelve months: expiring statutes, audit activity, tax payments, other activity, or final decisions in matters that are the subject of controversy in various taxing jurisdictions in which we operate.
(Millions of dollars)202120202019
Balance at October 1$620 $577 $601 
Increase due to acquisitions2 1 3 
Increase due to current year tax positions23 35 11 
Increase due to prior year tax positions6 76 6 
Decreases due to prior year tax positions(4)(49)(39)
Decrease due to settlements with tax authorities (183)(4)— 
Decrease due to lapse of statute of limitations(100)(16)(5)
Balance at September 30$364 $620 $577 
Unrecognized tax benefits that would affect the effective tax rate if recognized$447 $719 $624 
Upon the Company's acquisition of CareFusion in 2015, the Company became a party to a tax matters agreement with Cardinal Health resulting from Cardinal Health's spin-off of CareFusion in fiscal year 2010. Under the tax matters agreement, the Company is obligated to indemnify Cardinal Health for certain tax exposures and transaction taxes prior to CareFusion’s spin-off from Cardinal Health. The indemnification payable is approximately $119 million at September 30, 2021 and is included in Deferred Income Taxes and Other Liabilities on the consolidated balance sheet.
The following were included for the years ended September 30 as a component of Income tax provision (benefit) on the consolidated statements of income.
(Millions of dollars)202120202019
Interest and penalties associated with unrecognized tax benefits
$5 $1 $26 
The Company conducts business and files tax returns in numerous countries and currently has tax audits in progress in a number of tax jurisdictions. The IRS has completed its audit for the BD legacy fiscal year 2014, BD combined company fiscal years 2015 and 2017 and CareFusion legacy fiscal years 2010 through short period 2015. With regard to Bard, all examinations have been completed through calendar year 2014, and calendar years 2015 through short period 2017 are currently under examination by the IRS. For the other major tax jurisdictions where the Company conducts business, tax years are generally open after 2012.
Deferred Income Taxes
Deferred income taxes at September 30 consisted of:
 20212020
(Millions of dollars)AssetsLiabilitiesAssetsLiabilities
Compensation and benefits$527 $— $554 $— 
Property and equipment— 410 — 361 
Intangibles— 2,160 — 2,408 
Loss and credit carryforwards2,107 — 1,900 — 
Product recall and liability reserves191 — 241 — 
Other555 123 501 137 
3,379 2,693 3,196 2,906 
Valuation allowance(2,036)— (1,820)— 
Net (a)$1,343 $2,693 $1,376 $2,906 
(a)Net deferred tax assets are included in Other Assets and net deferred tax liabilities are included in Deferred Income Taxes and Other Liabilities on the consolidated balance sheets.
Deferred tax assets and liabilities are netted on the balance sheet by separate tax jurisdictions. Deferred taxes have not been provided on undistributed earnings of foreign subsidiaries as of September 30, 2021 since the determination of the total amount of unrecognized deferred tax liability is not practicable.
Generally, deferred tax assets have been established as a result of net operating losses and credit carryforwards with expiration dates from 2022 to an unlimited expiration date. Valuation allowances have been established as a result of an evaluation of the uncertainty associated with the realization of certain deferred tax assets on these losses and credit carryforwards. The valuation allowance at September 30, 2021 is primarily the result of foreign losses due to the Company’s global re-organization of its foreign entities and these generally have no expiration date. Valuation allowances are also maintained with respect to deferred tax assets for certain federal and state carryforwards that may not be realized and that principally expire in 2022.
Tax Rate Reconciliation
A reconciliation of the federal statutory tax rate to the Company’s effective income tax rate was as follows:
202120202019
Federal statutory tax rate21.0 %21.0 %21.0 %
U.S. tax legislation (see discussion above)— — (4.3)
State and local income taxes, net of federal tax benefit(1.9)(1.9)0.1 
Foreign income tax at rates other than 21%(8.1)(14.8)(6.6)
Effect of foreign operations(0.1)19.1 (5.5)
Effect of Research Credits and FDII/Domestic Production Activities(1.6)(5.0)(3.3)
Effect of share-based compensation0.1 (4.5)(3.9)
Effect of gain on divestitures— (4.5)(2.0)
Effect of valuation allowance release(1.7)— — 
Other, net(1.0)1.9 (0.3)
Effective income tax rate6.7 %11.3 %(4.8)%
The fluctuations in the Company’s reported tax rates are primarily due to the geographical mix of income attributable to foreign countries that have income tax rates that vary from the U.S. tax rate, and to the Act, the effects of which were recorded in fiscal year 2019.
Tax Holidays and Payments
The approximate tax impacts related to tax holidays in various countries in which the Company does business are provided below. The tax holidays expire at various dates through 2028. The Company’s income tax payments, net of refunds are also provided below.
(Millions of dollars, except per share amounts)202120202019
Tax impact related to tax holidays$248 $136 $(43)
Impact of tax holiday on diluted earnings per share0.85 0.48 (0.16)
Income tax payments, net of refunds670 518 536