Income Taxes

6 Months Ended

Mar. 31, 2018

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Tax Restructuring Benefit

In the second quarter of 2018, we recognized a $38.8 tax benefit, net of reserves for uncertain tax positions, and a decrease in net deferred tax liabilities resulting from the restructuring of foreign subsidiaries.

U.S. Tax Cuts and Jobs Act

On 22 December 2017, the United States enacted the Tax Act which significantly changed existing U.S. tax laws, including a reduction in the federal corporate income tax rate from 35% to 21%, a deemed repatriation tax on unremitted foreign earnings, as well as other changes. As a result of the Tax Act, our consolidated income statements for the six months ended 31 March 2018 reflect a net expense of $239.0 for the impacts recorded during the first quarter of fiscal year 2018. This includes an expense of $453.0 for the cost of the deemed repatriation tax and adjustments to the future cost of repatriation from foreign investments. This expense impacted our income tax provision by $420.5 and equity affiliate income by $32.5 for future costs of repatriation that will be borne by an equity affiliate. In addition, the income tax provision was benefited by $214.0 primarily from the re-measurement of our net U.S. deferred tax liabilities at the lower corporate tax rate.

The $420.5 adjustment reflects a deemed repatriation tax of $364.1 that is payable over eight years and $56.4 resulting primarily from withholding taxes that were established for repatriation of foreign earnings and other impacts of the Tax Act. We expect to apply $53.8 of existing foreign tax credits towards the $364.1 deemed repatriation tax. Of the remaining $310.3 obligation, $263.4 is recorded on our consolidated balance sheets in noncurrent liabilities.

We are reporting the impacts of the Tax Act provisionally based upon reasonable estimates as of 31 March 2018. The impacts are not yet finalized as they are dependent on factors and analysis not yet known or fully completed, including but not limited to, the final cash balances for fiscal year 2018, further book to U.S. tax adjustments for the earnings of foreign entities, the issuance of additional guidance, as well as our ongoing analysis of the Tax Act.

As a fiscal year-end taxpayer, certain provisions of the Tax Act become effective in our fiscal year 2018 while other provisions do not become effective until fiscal year 2019. The corporate tax rate reduction is effective as of 1 January 2018 and, accordingly, reduces our 2018 fiscal year U.S. federal statutory rate to a blended rate of approximately 24.5%.

Primarily due to the net impact of the Tax Act and the restructuring benefit, our effective tax rate was 37.2% for the six months ended 31 March 2018.

Cash Paid for Taxes (Net of Cash Refunds)

On a total company basis, income tax payments, net of refunds, were $153.7 and $784.7 for the six months ended 31 March 2018 and 2017, respectively. The prior year includes tax payments related to the gain on the sale of the PMD business.

Unrecognized Tax Benefits

The consolidated balance sheets as of 31 March 2018 and 30 September 2017 include unrecognized tax benefits of $156.9 and $146.4, respectively. The increase from the prior year primarily resulted from additions for current year tax positions of $18.7 and included uncertain tax positions from the restructuring of foreign subsidiaries and reserves for ongoing transfer pricing uncertainties. This was offset by net reductions for tax positions of prior years of $9.7, primarily related to the settlement of U.S. federal tax audits for 2012 through 2014.

On 17 April 2018, we received a final audit settlement agreement that resolved uncertainties related to approximately $40 of unrecognized tax benefits that were recorded as of 31 March 2018. This settlement primarily related to tax positions taken in conjunction with the disposition of our Homecare business in 2012. As a result, we expect an income tax benefit of approximately $25, including interest, in discontinued operations during the third quarter of 2018. In addition, the settlement will result in an income tax benefit of approximately $9, including interest, in continuing operations during the third quarter of 2018 for the release of tax reserves on other matters.