Income Taxes

9 Months Ended

Jun. 30, 2024

Income Tax Disclosure [Abstract]

Income Taxes

14. Income Taxes

In calculating the provision for income taxes, Adient uses an estimate of the annual effective tax rate based upon the facts and circumstances known at each interim period. On a quarterly basis, the actual effective tax rate is adjusted, as appropriate, based on changes in facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and each interim period thereafter. For the three and nine months ended June 30, 2024, Adient’s income tax expense was $40 million equating to an effective tax rate of 89%, and $68 million equating to an effective tax rate of 99%, respectively. The three and nine month income tax expense was higher than the Irish statutory rate of 12.5% primarily due to the inability to record a tax benefit for losses in jurisdictions with valuation allowances and tax expense related to foreign exchange remeasurements of tax balances primarily in Mexico, with the nine month income tax expense also partially offset by tax benefits from the release of uncertain tax positions due to audit closures. For the three and nine months ended June 30, 2023, Adient’s income tax expense was $28 million equating to an effective tax rate of 23%, and $84 million equating to an effective tax rate of 38%, respectively. The three and nine month income tax expense was higher than the Irish statutory rate of 12.5% primarily due to the inability to record a tax benefit for losses in jurisdictions with valuation allowances and foreign tax rate differentials.

Valuation Allowances

As a result of the Company's third quarter fiscal 2024 analysis of the realizability of its worldwide deferred tax assets, and after considering tax planning initiatives and other positive and negative evidence, Adient determined that no changes to valuation allowances were required.

Adient reviews the realizability of its deferred tax assets on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or combined group recording the net deferred tax asset are considered, along with any other positive or negative evidence. All of the factors that Adient considers in evaluating whether and when to establish or release all or a portion of the deferred tax asset valuation allowance involve significant judgment. Since future financial results may differ from previous estimates, periodic adjustments to Adient's valuation allowances may be necessary.

Given current earnings and anticipated future earnings at certain subsidiaries, the Company believes that there is a reasonable possibility that sufficient positive evidence may become available that would allow the release of all, or a portion of, valuation allowances at certain subsidiaries within the next twelve months. A release of valuation allowances, if any, would result in the recognition of certain deferred tax assets which could generate a material income tax benefit for the period in which such release is recorded.

Uncertain Tax Positions

At June 30, 2024, Adient had gross tax effected unrecognized tax benefits of $509 million. If recognized, $147 million of Adient's unrecognized tax benefits would impact the effective tax rate. Total net accrued interest at June 30, 2024 was approximately $28 million (net of tax benefit). The interest and penalties accrued for the three and nine months ended June 30, 2024 was $2 million and $5 million, respectively. Additionally, during the nine months ended June 30, 2024, Adient recognized tax benefits of $17 million related to the release of uncertain tax positions due to audit closures. At June 30, 2023, Adient had gross tax effected unrecognized tax benefits of $523 million. If recognized, $126 million of Adient's unrecognized tax benefits would impact the effective tax rate. Total net accrued interest at June 30, 2023 was approximately $29 million (net of tax benefit). The interest and penalties accrued for the three and nine months ended June 30, 2023 was $2 million and $6 million, respectively. Adient recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.