Income Taxes

12 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The table below summarizes income from U.S. and foreign operations before taxes:

	2021	2020	2019
United States income	$924.6	$943.7	$723.3
Foreign income	1,288.7	1,215.3	1,350.8
Equity affiliates' income	294.1	264.8	215.4
Income from continuing operations before taxes	$2,507.4	$2,423.8	$2,289.5

The table below details the components of our income tax provision:

	2021	2020	2019
Current Tax Provision
Federal	$85.6	$26.9	$163.7
State	28.4	23.8	23.3
Foreign	254.8	262.7	235.5
Total current tax provision	368.8	313.4	422.5
Deferred Tax Provision
Federal	54.7	108.8	9.7
State	(0.1)	(3.6)	2.4
Foreign	39.4	59.8	45.5
Total deferred tax provision	94.0	165.0	57.6
Total income tax provision	$462.8	$478.4	$480.1

Cash Paid for Taxes (Net of Cash Refunds)

Income tax payments, net of refunds, were $383.8, $379.9, and $324.3 in fiscal years 2021, 2020, and 2019, respectively. Fiscal year 2021 reflects an income tax refund of $6.7 that is related to cash provided by discontinued operations.

India Finance Act 2020

On 27 March 2020, the Indian government passed Finance Act 2020 (the "India Finance Act"), which amended rules regarding the taxation of dividends declared and distributed by Indian companies. Under the India Finance Act, future dividends declared or distributed by an Indian company are no longer subject to dividend distribution tax. Instead, any non-resident recipient is subject to a withholding tax. Our income tax provision for the fiscal year ended 30 September 2020 reflected an expense of $20.3 for estimated withholding taxes that we may incur on future dividends related to INOX Air Products Private Limited ("INOX"), an equity affiliate investment in our Industrial Gases – Asia segment. Additionally, we recorded a benefit of $33.8 within "Equity affiliates' income" for our share of accumulated dividend distribution taxes released with respect to INOX.

U.S. Tax Cuts and Jobs Act

On 22 December 2017, the United States enacted the U.S. Tax Cuts and Jobs Act (the “Tax Act” or "Tax Reform"), which significantly changed existing U.S. tax laws, including a reduction in the federal corporate income tax rate to 21%, a deemed repatriation tax on unremitted foreign earnings, as well as other changes. Our consolidated income statements reflect a discrete net income tax expense of $43.8 in fiscal year 2019 related to impacts of the Tax Act. The net expense included the reversal of a non-recurring $56.2 benefit initially recorded in fiscal year 2018 related to the U.S. taxation of deemed foreign dividends, which was eliminated by regulations issued in fiscal year 2019. The reversal in 2019 was partially offset by a benefit of $12.4 to reduce the total expected costs of the deemed repatriation tax.

As of 30 September 2021, the remaining liability for the deemed repatriation tax is $177.7, $157.1 of which is presented within noncurrent liabilities on our consolidated balance sheets. We are paying this obligation in installments over five remaining years.

Effective Tax Rate

The effective tax rate equals the income tax provision divided by income from continuing operations before taxes. A reconciliation of the differences between the United States federal statutory tax rate and the effective tax rate is provided below:

(Percent of income before taxes)	2021		2020		2019
U.S. federal statutory tax rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	0.9		0.6		1.0
Income from equity affiliates	(2.5)		(2.3)		(2.0)
Foreign tax differentials	0.5		0.1		1.0
Tax on foreign repatriated earnings	0.7		0.9		0.1
Share-based compensation	(0.7)		(0.8)		(0.6)
Tax reform repatriation	—		—		1.9
Other	(1.4)		0.2		(1.4)
Effective Tax Rate	18.5	%	19.7	%	21.0	%

Foreign tax differentials represent the differences between foreign earnings subject to foreign tax rates that are different than the U.S. federal statutory rate and include tax holidays and incentives. Our income tax holidays relate to operations in jurisdictions that provide reduced income tax rates for certain qualifying activities and are conditional upon us meeting certain operating thresholds. The impact of these tax holidays decreased income tax expense by $26.9 ($0.12 per share) in fiscal year 2020, primarily related to a preferential tax rate in China that is effective until 31 December 2030. This includes the impact of remeasurement of the deferred tax assets and liabilities in 2020 due to an extension of the holiday period in China. The impact of tax holidays in fiscal years 2021 and 2019 was not material.

Tax on foreign repatriated earnings includes benefits and costs related to U.S. and foreign taxation on the current and future repatriation of foreign earnings and a U.S. benefit for related foreign tax credits. The effective tax rate in 2020 reflects impacts from the India Finance Act 2020 discussed above. In addition, the Tax Act included new provisions related to the taxation of foreign operations, known as Global Intangible Low Tax Income (“GILTI”). We have elected as an accounting policy to account for GILTI as a period cost when incurred.

Share-based compensation reflects the impact from recognition of $17.0, $20.0, and $14.6 of excess tax benefits in our provision for income taxes during fiscal years 2021, 2020, and 2019, respectively.

In fiscal year 2021, other includes net tax benefits of $21.5, including interest, resulting from the release of U.S. unrecognized tax benefits upon expiration of the statute of limitations on uncertain tax positions taken in prior years.

Deferred Tax Assets and Liabilities

The significant components of deferred tax assets and liabilities are as follows:

30 September	2021	2020
Gross Deferred Tax Assets
Retirement benefits and compensation accruals	$69.4	$209.0
Tax loss carryforwards	120.9	112.6
Tax credits and other tax carryforwards	27.3	40.3
Reserves and accruals	74.5	67.0
Currency losses	30.4	30.4
Other	44.0	64.6
Valuation allowance	(97.6)	(95.0)
Deferred Tax Assets	268.9	428.9
Gross Deferred Tax Liabilities
Plant and equipment	1,171.8	1,110.9
Unremitted earnings of foreign entities	69.1	58.7
Partnership and other investments	15.3	19.3
Intangible assets	86.2	83.6
Other	7.2	3.9
Deferred Tax Liabilities	1,349.6	1,276.4
Net Deferred Income Tax Liability	$1,080.7	$847.5

Deferred tax assets and liabilities are included within the consolidated balance sheets as follows:

	2021	2020
Deferred Tax Assets
Other noncurrent assets	$100.2	$115.1
Deferred Tax Liabilities
Deferred income taxes	1,180.9	962.6
Net Deferred Income Tax Liability	$1,080.7	$847.5

Deferred tax liabilities related to plant and equipment increased due to the impact of accelerated tax depreciation deductions in excess of book depreciation primarily in the United States. Deferred tax assets related to retirement benefits and compensation accruals are impacted by changes in plan assets and benefit obligations that have been recognized in other comprehensive income. This balance decreased primarily due to higher than expected asset returns and higher discount rates. Deferred tax assets related to tax credits and other tax carryforwards decreased primarily due to the utilization of tax credits against our income tax liabilities.

As of 30 September 2021, we had the following deferred tax assets for certain tax credits:

Jurisdiction	Gross Tax Asset	Expiration Period
U.S. State	$2.2	2022 - 2035
U.S. Federal	2.1	2027 - 2031
Foreign	27.5	2022 - 2041; Indefinite

Of the $27.5 foreign tax credits, $14.2 have indefinite carryforward periods.

As of 30 September 2021, we had the following loss carryforwards:

Jurisdiction	Gross Loss Carryforward	Expiration Period
U.S. State Net Operating Loss	$318.8	2022 - 2040
U.S. Federal Capital Loss	26.5	2025
Foreign Net Operating Loss	258.8	2022 - 2036; Indefinite
Foreign Capital Loss	221.6	Indefinite

Of the $258.8 of foreign net operating loss carryforwards, $111.5 have indefinite carryforward periods.

The valuation allowance was $97.6 and $95.0 as of 30 September 2021 and 2020, respectively. As of 30 September 2021, the balance primarily related to $35.1 of foreign credits and loss carryforwards as well as $55.4 related to foreign capital losses that were generated from the loss recorded on the exit from the Energy-from-Waste project in 2016. If events warrant the reversal of the valuation allowance, it would result in a reduction of tax expense. We believe it is more likely than not that future earnings and reversal of deferred tax liabilities will be sufficient to utilize our deferred tax assets, net of existing valuation allowance, as of 30 September 2021.

We record income taxes on the undistributed earnings of our foreign subsidiaries and corporate joint ventures unless those earnings are indefinitely reinvested. Such earnings may be subject to foreign withholding and other taxes. The cumulative undistributed earnings that are considered to be indefinitely reinvested in foreign subsidiaries and corporate joint ventures are included in retained earnings on the consolidated balance sheets and amounted to $5.9 billion as of 30 September 2021. An estimated $540.4 in additional foreign withholding and other income taxes would be due if these earnings were remitted as dividends.

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of the unrecognized tax benefits, which excludes interest and penalties, is as follows:

	2021	2020	2019
Unrecognized tax benefits balance at beginning of year	$237.0	$231.7	$233.6
Additions for tax positions of the current year	14.5	7.6	7.8
Additions for tax positions of prior years	3.5	17.7	14.2
Reductions for tax positions of prior years	(8.2)	(4.1)	(14.7)
Settlements	(3.1)	(1.2)	(1.5)
Statute of limitations expiration	(104.6)	(14.0)	(3.9)
Foreign currency translation	1.2	(0.7)	(3.8)
Unrecognized tax benefits balance at end of year	$140.3	$237.0	$231.7

Of our unrecognized tax benefits as of 30 September 2021, $73.7 would impact the effective tax rate from continuing operations if recognized.

In fiscal year 2021, reserves for unrecognized tax benefits decreased $104.6 due to statute of limitation expirations. We released reserves of $65.6 related to the sale of our former Performance Materials Division (“PMD”), $8.2 associated with our former Energy-from-Waste business (“EfW”), and $27.5 for other reserves, including those associated with a tax election benefit related to a non-U.S. subsidiary in 2017. Upon release of the reserves related to PMD and EfW, we recorded income tax benefits of $51.8 and $8.2, respectively, as a component of discontinued operations. The PMD reserve was net of related deferred tax assets of $13.8. The release of other reserves of $27.5 was net of related deferred tax assets of $8.4 and resulted in an income tax benefit, including interest, of $21.5.

Interest and penalties related to unrecognized tax benefits are recorded as a component of income tax expense and totaled ($0.2), $6.1, and $12.0 in fiscal years 2021, 2020, and 2019, respectively. Our 2021 expense reflects a benefit from the reversal of accrued interest on reserves released during the period. Our accrued balance for interest and penalties was $24.9 and $25.2 as of 30 September 2021 and 2020, respectively.

Income Tax Examinations

We are currently under examination in a number of tax jurisdictions. It is reasonably possible that a change in our unrecognized tax benefits may occur in fiscal year 2022 if any of these examinations are resolved during the next twelve months. However, quantification of an estimated range cannot be made as of the date of this report.

We generally remain subject to examination in the following major tax jurisdictions for the years indicated below:

Major Tax Jurisdiction	Open Tax Years
North America
United States – Federal	2018 - 2021
United States – State	2012 - 2021
Canada	2015 - 2021
Europe
France	2018 - 2021
Germany	2017 - 2021
Netherlands	2016 - 2021
Spain	2015 - 2021
United Kingdom	2018 - 2021
Asia
China	2011 - 2021
South Korea	2010 - 2021
Taiwan	2016 - 2021
Latin America
Chile	2018 - 2021