Income taxes (Tables)

12 Months Ended

Aug. 31, 2017

Schedule of income before income tax, domestic and foreign

The components of Earnings Before Income Tax Provision were (in millions):



	2017		2016		2015
U.S.	$	1,953	$	2,577	$	2,725
Non–U.S.	2,900		2,567		2,586
Total	$	4,853	$	5,144	$	5,311

Provisions for income taxes

The provision for income taxes consists of the following (in millions):



	2017			2016			2015
Current provision
Federal	$	759		$	999		$	846
State	45			56			121
Non–U.S.	390			371			128
	1,194			1,426			1,095
Deferred provision
Federal	(306		)	(183		)	(23		)
State	(24		)	6			(16		)
Non–U.S. – tax law change	(80		)	(182		)	—
Non–U.S. – excluding tax law change	(24		)	(70		)	—
	(434		)	(429		)	(39		)
Income tax provision	$	760		$	997		$	1,056

Difference between the statutory federal income tax rate and the effective tax rate

The difference between the statutory federal income tax rate and the effective tax rate is as follows:



	2017		2016		2015
Federal statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	0.3		0.8		1.3
Deferred tax asset recognition¹	—		—		(4.1	)
Gain on previously held equity interest	—		—		(5.8	)
Foreign income taxed at non-U.S. rates	(11.8	)	(7.8	)	(6.2	)
Non-taxable income	(5.3	)	(4.4	)	(2.6	)
Non-deductible expenses	1.5		1.1		2.3
Tax law changes	(1.6	)	(3.5	)	—
Tax credits	(2.9	)	(1.5	)	—
Other	0.5		(0.3	)	—
Effective income tax rate	15.7	%	19.4	%	19.9	%

Upon the amendment and immediate exercise of the call option to acquire the remaining 55% ownership of Alliance Boots, the Company was required to compare the fair value of the amended option with the book value of the original option with a gain or loss recognized for the difference. The fair value of the amended option resulted in a financial statement loss of $866 million. The loss on the Alliance Boots call option was, in part, a capital loss and available to be carried forward and offset future capital gains through fiscal 2020. In 2015, the deferred tax asset related to the loss was recognized, resulting in the 4.1% effective tax rate benefit reported in the table above.

Deferred tax assets and liabilities included in the consolidated balance sheet

The deferred tax assets and liabilities included in the Consolidated Balance Sheets consist of the following (in millions):



	2017		2016
Deferred tax assets
Postretirement benefits	$	134	$	190
Compensation and benefits	207		205
Insurance	109		75
Accrued rent	174		169
Outside basis difference	55		134
Allowance for doubtful accounts	55		65
Tax attributes	555		373
Stock compensation	73		97
Deferred income	220		150
Other	88		195
	1,670		1,653
Less: valuation allowance	408		305
Total deferred tax assets	1,262		1,348
Deferred tax liabilities
Accelerated depreciation	841		1,205
Inventory	416		388
Intangible assets	1,277		1,418
Equity method investment	1,002		978
Deferred income	—		—
	3,536		3,989
Net deferred tax liabilities	$	2,274	$	2,641

Reconciliation of the total amounts of unrecognized tax benefits

The following table provides a reconciliation of the total amounts of unrecognized tax benefits (in millions):



	2017			2016			2015
Balance at beginning of year	$	269		$	261		$	193
Gross increases related to business combination	—			—			84
Gross increases related to tax positions in a prior period	151			21			45
Gross decreases related to tax positions in a prior period	(36		)	(47		)	(75		)
Gross increases related to tax positions in the current period	33			68			63
Settlements with taxing authorities	(2		)	(17		)	(45		)
Currency	(1		)	(11		)	—
Lapse of statute of limitations	(5		)	(6		)	(4		)
Balance at end of year	$	409		$	269		$	261