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Income taxes
 12 Months Ended
Aug. 31, 2024
Income Tax Disclosure [Abstract]  
Income taxes Income taxes
The components of (Loss) earnings before income tax provision (benefit) were (in millions):
 202420232022
U.S.$(15,599)$(7,553)$2,998 
Non–U.S.1,380 2,134 987 
Total$(14,219)$(5,419)$3,985 

The Income tax provision (benefit) consists of the following (in millions):
 202420232022
Current provision   
Federal$91 $242 $39 
State52 (13)37 
Non–U.S.185 283 260 
 $328 $512 $336 
Deferred provision   
Federal$910 $(1,886)$(78)
State259 (364)(20)
Non–U.S. (251)(120)(268)
 918 (2,370)(366)
Income tax provision (benefit)$1,246 $(1,858)$(30)

The Company’s effective tax rate for fiscal 2024 was an expense of 8.8% due to the impact of a non-cash expense to record a valuation allowance on certain U.S. federal and state deferred tax assets primarily related to opioid liabilities recognized in prior periods, VillageMD earnings not taxable to the Company, and goodwill impairment, which is primarily not deductible for tax purposes.
The Company’s effective tax rate for fiscal 2023 was a benefit of 34.3%. due to a reduction in the valuation allowance held against capital loss carryforwards, changes to deferred taxes as a result of internal legal entity restructuring, and tax benefits related to a measurement change in prior year tax positions. These benefits were partially offset by the impact of certain nondeductible charges for opioid related claims and litigation settlements recorded during fiscal 2023.

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

 202420232022
Federal statutory rate21.0 %21.0 %21.0 %
State income taxes, net of federal benefit(1.8)5.8 0.4 
Foreign income taxed at non-U.S. rates(0.3)(3.0)(3.0)
Non-taxable income0.3 2.5 (2.7)
Non-deductible expenses(0.9)(4.9)3.0 
Change in valuation allowance 1
(13.2)6.0 (9.0)
Tax benefits from restructuring— 1.1 — 
Uncertain tax positions(0.4)(0.5)1.3 
Non-controlling interest(10.1)(2.9)1.2 
Goodwill impairment(7.2)— — 
Tax credits0.5 2.8 (1.0)
Conversion of equity investment— — (11.8)
Change in tax basis in foreign assets2
2.2 — — 
Change in outside basis difference1.4 1.9 — 
Change in measurement of prior year tax positions— 3.5 — 
Other(0.3)1.0 (0.2)
Effective income tax rate 3
(8.8)%34.3 %(0.8)%

1Net of changes in related tax attributes and tax benefits from capital losses generated and utilized.
2Represents the initial recognition of tax basis in intangible assets in foreign jurisdiction and the related valuation allowance.
3Effective tax rate for fiscal 2024 represents a tax expense on a pre-tax loss.
The deferred tax assets and liabilities included in the Consolidated Balance Sheets consist of the following (in millions):
 August 31, 2024August 31, 2023
Deferred tax assets:  
Compensation and benefits$100 $98 
Insurance125 131 
Accrued rent & lease obligations4,969 5,265 
Legal liability 1,477 1,551 
Allowance for doubtful accounts36 23 
Tax attributes7,894 7,784 
Stock compensation62 74 
Derivatives225 — 
Deferred income5 8 
Equity method investment29 76 
Intangible assets499 — 
Post retirement benefit91 — 
Other86 143 
 Total deferred tax assets$15,598 $15,153 
Less: valuation allowance9,642 7,360 
Total deferred tax assets, net$5,956 $7,793 
Deferred tax liabilities:  
Accelerated depreciation$341 $254 
Inventory371 403 
Intangible assets1,008 1,024 
Lease right-of-use asset4,392 4,690 
Outside basis difference 340 1,045 
Post retirement benefit196 — 
Other82 180 
Total deferred tax liabilities$6,730 $7,596 
Net deferred tax (liabilities) assets$(774)$197 


As of August 31, 2024, the Company has recorded deferred tax assets for tax attributes of $7.9 billion, primarily reflecting the benefit of $2.5 billion in U.S. federal, $1.2 billion in state and $28.1 billion in non-U.S. ordinary and capital losses. In addition, these deferred tax assets include $189 million of income tax credits. Of these deferred tax assets, $6.9 billion will expire at various dates from 2025 through 2041. The residual deferred tax assets of $1.0 billion 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 $9.6 billion against those deferred tax assets as of August 31, 2024.
As a result of cumulative losses in the U.S., the Company increased its valuation allowance by $2.3 billion, of which $2.2 billion pertained to certain U.S. and state deferred tax assets, primarily related to opioid settlements reached in fiscal 2023 (see Note 10. Commitments and contingencies for further information). The amount of the deferred tax asset considered realizable, however, could be adjusted if verifiable evidence of future taxable income, such as recognition of gains from the monetization of non-strategic assets, success of strategic initiatives, or the identification of tax planning strategies, becomes available, or if operational results improve, offering positive evidence of taxable income that outweighs historical negative evidence of cumulative losses.

Income taxes paid, net of refunds were $297 million, $64 million and $387 million for fiscal 2024, 2023 and 2022, 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, 2024 and 2023, unrecognized tax benefits of $725 million and $703 million were reported within Other non-current liabilities, respectively; $394 million and $413 million were reported against deferred taxes, respectively; and $75 million and $116 million were reported against related tax receivables in Other non-current assets, respectively, 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):
 202420232022
Balance at beginning of year$1,106 $1,110 $1,098 
Gross increases related to tax positions in a prior period91 12 63 
Gross decreases related to tax positions in a prior period(443)(19)(51)
Gross increases related to tax positions in the current period273 12 21 
Settlements with taxing authorities(12)(7)(19)
Lapse of statute of limitations(3)(2)(2)
Balance at end of year$1,012 $1,106 $1,110 

At August 31, 2024, 2023 and 2022, $618 million, $588 million and $529 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 $45 million due to anticipated federal and state 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, 2024 and 2023, the Company had accrued interest and penalties of $182 million and $125 million, respectively. For the years ended August 31, 2024, 2023 and 2022, the amounts reported in income tax expense related to interest and penalties were $57 million, $29 million and $13 million, 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 2010. 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 2019 and in Germany prior to 2017.

During the fiscal 2024, the Internal Revenue Service (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 has appealed certain issues. The primary disputed issue relates to the valuation of the call option exercised to acquire Alliance Boots GmbH (“Alliance Boots”), described in more detail below.

On August 2, 2012, the Company acquired a 45% equity interest in Alliance Boots along with a call option to acquire the remaining 55% equity interest in Alliance Boots, valued at $866 million. During the fiscal year ended August 31, 2014 (“fiscal 2014”), the Company entered into an amendment to the purchase and option agreement which accelerated the option period. Upon the amendment and immediate exercise of the call option, the Company was required to compare the fair value of the amended option with the book value of the original option. The fair value of the amended option was estimated to be zero. As a result, the Company recognized a non-cash loss on the exercise of the call option of $866 million in its fiscal 2014 financial statements. Subsequently, the option was transferred to a foreign subsidiary during the fiscal year ended August 31, 2015. As the transferred option was worthless, no income was recognized for U.S. tax purposes. The IRS disagrees with the Company’s conclusion regarding the value of the option and is seeking an 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.
The Company has received tax holidays from Swiss cantonal income taxes relative to certain of its Swiss operations. The income tax holidays expired in September 2022. A reduced tax rate was effective through August 2024. The holidays had a beneficial impact of $9 million and $104 million (inclusive of capital GILTI tax cost) during fiscal 2023 and 2022, 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, 2024, 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.

U.S. tax law changes
On August 16, 2022, the United States government enacted the IRA. The IRA establishes a new corporate alternative minimum tax based on financial statement income adjusted for certain items. The new minimum tax is effective for fiscal 2024. The enactment of the IRA did not have a material impact to the Company’s financial statements.

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.

Non - U.S. tax law changes
The Organization for Economic Co-operation and Development (“OECD”) has announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules (“Pillar Two”) for a new 15% global minimum tax applicable to large multinational corporations. Certain jurisdictions in which the group operates, including the United Kingdom and Ireland, have enacted Pillar Two legislation that will be effective from fiscal 2025. The OECD and its member countries continue to release new guidance and legislation on Pillar Two and we continue to evaluate the impact on our financial position of the global implementation of these rules. Based on enacted laws, Pillar Two is not expected to materially impact our effective tax rate or cash flows in the next fiscal year. New legislation or guidance could change our current assessment.