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Income taxes
 12 Months Ended
Aug. 31, 2021
Income Tax Disclosure [Abstract]  
Income taxes Income taxes
U.S. tax law changes
During 2019, the U.S. Treasury Department issued regulations to apply retroactively covering certain components of the Tax Cuts and Jobs Act of 2017. Certain guidance included in these regulations is inconsistent with the Company’s interpretation that led to the recognition of $247 million of tax benefits in prior periods. The tax benefits relate to the Company’s one-time transition tax on certain un-repatriated earnings of foreign subsidiaries, which was enacted as part of the 2017 U.S. tax law changes. Despite this guidance, the Company remains confident in its interpretation of the U.S. tax law changes and intends to defend this position through litigation, if necessary. However, if the Company is ultimately unsuccessful in defending its position, it may be required to reverse all or a portion of the benefits previously recorded.

UK tax law changes
On June 10, 2021 the UK Finance Act 2021 was enacted increasing the UK tax rate from 19% to 25% effective April 1, 2023. The Company recorded tax expense of $344 million from re-measuring the net UK deferred tax liability in fiscal 2021. On July 22, 2020 the UK Finance Bill 2020 was enacted increasing the UK tax rate from 17% to 19% effective April 1, 2020. The Company recorded tax expense of $139 million from re-measuring the net UK deferred tax liability in fiscal 2020.

The components of earnings from continuing operations before income tax provision were (in millions):
 202120202019
U.S.$61 $759 $1,898 
Non–U.S.1,934 (313)2,461 
Total$1,995 $446 $4,359 
The provision for income taxes from continuing operations consists of the following (in millions):
 202120202019
Current provision   
Federal$79 $184 $228 
State115 49 46 
Non–U.S.234 135 183 
 $428 $368 $457 
Deferred provision   
Federal$(10)$(83)$151 
State(46)2 4 
Non–U.S. – tax law change344 139 — 
Non–U.S. – excluding tax law change(49)(87)(35)
 239 (29)120 
Income tax provision$667 $339 $577 
 
The difference between the statutory federal income tax rate and the effective tax rate from continuing operations is as follows:
 202120202019
Federal statutory rate21.0 %21.0 %21.0 %
State income taxes, net of federal benefit3.5 8.8 0.9 
Foreign income taxed at non-U.S. rates(4.4)(17.0)(1.9)
Non-taxable income(5.0)(47.5)(3.6)
Non-deductible expenses0.3 9.0 0.2 
Tax law changes17.3 31.3 (0.4)
Change in valuation allowance 1
(4.7)4.1 2.1 
Tax benefits from restructuring(4.2)— — 
Tax expense on non-operating equity earnings6.1 — — 
Uncertain tax positions6.2 7.5 (0.8)
Goodwill impairment— 72.5 — 
Tax credits(1.8)(10.3)(4.4)
Other(0.9)(3.4)0.1 
Effective income tax rate33.4 %76.0 %13.2 %
1Net of changes in related tax attributes and tax benefits from capital losses generated and utilized in FY21.
The deferred tax assets and liabilities included in the Consolidated Balance Sheets consist of the following (in millions):
 20212020
Deferred tax assets:  
Compensation and benefits$175 $176 
Postretirement benefits— 88 
Insurance103 98 
Accrued rent & lease obligations5,372 5,187 
Allowance for doubtful accounts34 9 
Tax attributes7,467 6,781 
Stock compensation88 47 
Deferred income34 18 
Other — 50 
 $13,273 $12,454 
Less: valuation allowance7,239 6,490 
Total deferred tax assets$6,034 $5,964 
Deferred tax liabilities:  
Accelerated depreciation$896 $683 
Inventory377 345 
Intangible assets1,465 1,130 
Equity method investment236 542 
Lease right-of-use asset4,792 4,589 
Other30 — 
Total deferred tax liabilities7,796 7,289 
Net deferred tax liabilities$1,762 $1,325 

As of August 31, 2021, the Company has recorded deferred tax assets for tax attributes of $7.5 billion, primarily reflecting the benefit of $670 million in U.S. federal, $75 million in state and $6.6 billion in non-U.S. ordinary and capital losses. In addition, these deferred tax assets include $97 million of income tax credits. Of these deferred tax assets, $7.1 billion will expire at various dates from 2022 through 2038. The residual deferred tax assets of $398 million have no expiration date.

The Company believes it is more likely than not that the benefit from certain deferred tax assets will not be realized. The assessment of realization of deferred tax assets is performed based on the weight of the positive and negative evidence available to indicate whether the asset is recoverable, including tax planning strategies that are prudent and feasible. In recognition of this risk, the Company has recorded a valuation allowance of $7.2 billion against those deferred tax assets as of August 31, 2021.

Income taxes paid, net of refunds were $336 million, $626 million and $893 million for fiscal years 2021, 2020 and 2019, respectively.

ASC Topic 740, Income Taxes, provides guidance regarding the recognition, measurement, presentation and disclosure in the financial statement of tax positions taken or expected to be taken on a tax return, including the decision whether to file in a particular jurisdiction. As of August 31, 2021, unrecognized tax benefits of $594 million were reported as long-term liabilities, $475 million were reported against deferred taxes, and $114 million were reported against related tax receivables in other non-current assets on the Consolidated Balance Sheets. These amounts include interest and penalties, when applicable.
The following table provides a reconciliation of the total amounts of unrecognized tax benefits (in millions):
 202120202019
Balance at beginning of year$494 $455 $456 
Gross increases related to tax positions in a prior period229 60 33 
Gross decreases related to tax positions in a prior period(52)(23)(53)
Gross increases related to tax positions in the current period446 9 26 
Settlements with taxing authorities(13)(4)(2)
Lapse of statute of limitations(6)(3)(5)
Balance at end of year$1,098 $494 $455 

At August 31, 2021, 2020 and 2019, $524 million, $353 million and $311 million, respectively, of unrecognized tax benefits would favorably impact the effective tax rate if recognized. During the next twelve months, based on current knowledge, it is reasonably possible the amount of unrecognized tax benefits could decrease by up to $132 million due to anticipated federal tax audit settlements and the expirations of statutes of limitations associated with tax positions related to multiple state tax jurisdictions.

The Company recognizes interest and penalties in the income tax provision in its Consolidated Statements of Earnings. At August 31, 2021 and August 31, 2020, the Company had accrued interest and penalties of $84 million and $58 million, respectively. For the year ended August 31, 2021, and August 31, 2020, the amount reported in income tax expense related to interest and penalties was $26 million and $11 million income tax expense, respectively.

The Company files a consolidated U.S. federal income tax return as well as income tax returns in various states and multiple foreign jurisdictions. It is generally no longer under audit examinations for U.S. federal income tax purposes for any years prior to fiscal 2014. With few exceptions, it is no longer subject to state and local income tax examinations by tax authorities for years before fiscal 2008. In foreign tax jurisdictions, the Company is generally no longer subject to examination by the tax authorities in the UK prior to 2015, Luxembourg prior to 2016 and in Germany prior to 2014.

The Company has received tax holidays from Swiss cantonal income taxes relative to certain of its Swiss operations. The income tax holidays are set to expire in September 2022. Upon expiration, a reduced tax rate will extend through December 2029. The holidays had a beneficial impact of $118 million and $124 million (inclusive of capital GILTI tax cost) during fiscal 2021 and 2020, respectively. This benefit is primarily included as part of the foreign income taxed at non-U.S. rates line in the effective tax rate reconciliation table above.

At August 31, 2021, it is not practicable for the Company to determine the amount of the unrecognized deferred tax liability it has with respect to temporary differences related to investments in foreign subsidiaries and foreign corporate joint ventures that are essentially permanent in duration.