Income taxes

6 Months Ended

Feb. 29, 2024

Income Tax Disclosure [Abstract]

Income taxes

Income taxes

The effective tax rate for the three months ended February 29, 2024 was a benefit of 6.0% due to the impact of the goodwill impairment, which is primarily not deductible for tax purposes, and U.S. tax on non-U.S. earnings, partially offset by tax benefits related to the initial recognition of deferred tax assets in foreign jurisdictions, net of valuation allowance. The effective tax rate for the three months ended February 28, 2023 was an expense of 11.5%, primarily due to the reduction in the valuation allowance previously recorded against deferred tax assets related to capital loss carryforwards. The reduction is primarily due to capital loss carryforwards utilized in the three months ended February 28, 2023 against capital gains recognized on the sale of shares in Cencora.

The effective tax rate for the six months ended February 29, 2024 was a benefit of 6.4% due to the impact of the goodwill impairment, which is primarily not deductible for tax purposes, and U.S tax on non-U.S. earnings, partially offset by tax benefits related to the initial recognition of tax basis in assets in foreign jurisdictions, net of valuation allowance. The effective tax rate for the six months ended February 28, 2023 was a benefit of 29.5%, primarily due to tax benefits on the reduction in the valuation allowance previously recorded against deferred tax assets related to capital loss carryforwards. The reduction is primarily due to capital loss carryforwards utilized against capital gains recognized on the sale of shares in Cencora and based on forecasted capital gains. This benefit was partially offset by the impact of certain nondeductible opioid-related claims recorded in the six months ended February 28, 2023.

Income taxes paid for the six months ended February 29, 2024 and February 28, 2023 were $216 million and $131 million, respectively.

The Company is subject to income taxes and tax audits in many jurisdictions and is regularly audited by the Internal Revenue Service (the “IRS”). During the three months ended February 29, 2024, the IRS issued the Company a Revenue Agent’s Report (the “RAR”) for tax years 2014 through 2017. The Company disagrees with the RAR and will appeal certain disputed issues. The primary disputed issue relates to a transfer pricing matter where the IRS is seeking additional tax of $2.7 billion plus penalties and interest. The Company intends to vigorously defend its position on the transfer pricing matter through the IRS’s administrative appeals office and, if necessary, judicial proceedings and is confident in its ability to prevail on the merits.

As of February 29, 2024, we believe our reserves for uncertain tax positions are appropriate based on the technical merits of the Company’s tax positions. However, the ultimate outcome of a settlement or litigation is uncertain and final resolution of these matters may have a material adverse impact on the Company’s consolidated financial statements. We do not expect a final resolution of these matters in the next 12 months. Based on the information currently available, we do not anticipate a significant increase or decrease to our tax contingencies for these issues within the next 12 months.