Income Taxes

12 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

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

	2023	2022	2021
United States income	$1,050.5	$947.9	$924.6
Foreign income	1,227.6	1,325.3	1,288.7
Equity affiliates' income	604.3	481.5	294.1
Income from continuing operations before taxes	$2,882.4	$2,754.7	$2,507.4

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

	2023	2022	2021
Current Tax Provision
Federal	$167.6	$149.1	$85.6
State	41.0	30.1	28.4
Foreign	367.3	289.3	254.8
Total current tax provision	575.9	468.5	368.8
Deferred Tax (Benefit) Provision
Federal	(12.5)	15.6	54.7
State	(5.8)	(1.9)	(0.1)
Foreign	(6.4)	18.6	39.4
Total Deferred Tax (Benefit) Provision	(24.7)	32.3	94.0
Total Income Tax Provision	$551.2	$500.8	$462.8

Cash Paid for Taxes (Net of Cash Refunds)

Income tax payments, net of refunds, were $645.2, $369.2, and $383.8 in fiscal years 2023, 2022, and 2021, respectively. Fiscal year 2023, 2022, and 2021 reflect income tax refunds associated with discontinued operations of $0.6, $59.6, and $6.7, respectively.

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. As of 30 September 2023, our outstanding liability for the deemed repatriation tax was $131.1, of which $109.4 is presented within noncurrent liabilities on our consolidated balance sheets. We are paying this obligation in installments over three remaining years.

Inflation Reduction Act and CHIPS and Science Act of 2022

In August 2022, the U.S. Inflation Reduction Act of 2022 and the CHIPS and Science Act of 2022 were signed into law. These acts include, among other provisions, a corporate alternative minimum tax of 15%, an excise tax on the repurchase of corporate stock, various climate and energy provisions, and incentives for investment in semiconductor manufacturing. We expect to realize benefits for carbon sequestration and clean hydrogen production once our new projects in these areas come on-stream in the U.S.

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)	2023		2022		2021
U.S. federal statutory tax rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	1.0		0.8		0.9
Income from equity affiliates	(3.8)		(3.4)		(2.5)
Foreign tax differentials	0.7		0.7		0.5
Tax on foreign repatriated earnings	0.5		0.7		0.7
Share-based compensation	(0.3)		(0.7)		(0.7)
Business and asset actions	0.7		0.1		—
Other	(0.7)		(1.0)		(1.4)
Effective Tax Rate	19.1	%	18.2	%	18.5	%

Equity affiliates’ income, which is primarily presented net of income taxes on our consolidated income statements, favorably impacts our effective tax rate. This impact increased over the years presented primarily due to our phased investment in the JIGPC joint venture. See Note 9, Equity Affiliates, for additional information.

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 conditioned upon us satisfying certain requirements.

Tax on foreign repatriated earnings includes costs related to U.S. taxation of foreign operations, foreign taxation on the current and future repatriation of foreign earnings, and a U.S. benefit for related foreign tax credits.

Share-based compensation reflects the impact from recognition of $10.2, $18.3, and $17.0 of excess tax benefits in our provision for income taxes during fiscal years 2023, 2022, and 2021, respectively.

During fiscal year 2023, we recorded a charge to net income for business and asset actions of $244.6 ($204.9 attributable to Air Products after tax). Refer to Note 4, Business and Asset Actions, for additional information. The charge included certain losses for which we could not recognize an income tax benefit and were subject to a valuation allowance of $36.0. Partially offsetting the valuation allowance cost was a $15.9 income tax benefit from a tax election related to a non-U.S. subsidiary.

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	2023	2022
Gross Deferred Tax Assets
Retirement benefits and compensation accruals	$75.2	$77.2
Tax loss carryforwards	141.8	126.3
Tax credits and other tax carryforwards	46.2	39.2
Reserves and accruals	65.2	55.4
Other	81.3	68.3
Valuation allowance	(153.3)	(100.1)
Deferred Tax Assets	256.4	266.3
Gross Deferred Tax Liabilities
Plant and equipment	1,192.0	1,187.6
Currency gains	20.6	22.5
Unremitted earnings of foreign entities	72.0	72.9
Partnership and other investments	18.6	16.1
Intangible assets	48.5	69.8
Other	11.1	9.1
Deferred Tax Liabilities	1,362.8	1,378.0
Net Deferred Income Tax Liability	$1,106.4	$1,111.7

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

	2023	2022
Deferred Tax Assets
Other noncurrent assets	$159.6	$135.7
Deferred Tax Liabilities
Deferred income taxes	1,266.0	1,247.4
Net Deferred Income Tax Liability	$1,106.4	$1,111.7

Deferred tax liabilities related to "Intangible assets" decreased primarily due to the impact of capitalizing research and development expenditures for U.S tax purposes. 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. The increase was partially offset with book charges in excess of tax related to our business and asset actions that included certain costs for which we could not recognize an income tax benefit and were subject to a valuation allowance.

Deferred tax assets for "Tax loss carryforwards" increased primarily due to losses in certain Chinese subsidiaries. A portion of these losses were subject to a valuation allowance for which we could not recognize an income tax benefit. The deferred tax components for "Reserves and accruals" and "Other" were impacted by changes in tax deferred deductions and the timing of revenue recognition for local tax and accounting purposes.

As of 30 September 2023, we had the following deferred tax assets for certain tax credits:

Jurisdiction	Gross Tax Asset	Expiration Period
U.S. State	$2.0	2024 - 2036
U.S. Federal	20.9	2030 - 2033
Credits in Foreign Jurisdictions	17.7	2030 - 2041; Indefinite

Of the $17.7 credits in foreign jurisdictions, $16.0 have indefinite carryforward periods.

As of 30 September 2023, we had the following loss carryforwards:

Jurisdiction	Gross Loss Carryforward	Expiration Period
U.S. State Net Operating Loss	$237.1	2024 - 2040
U.S. State Capital Loss	35.2	2025 - 2027
U.S. Federal Capital Loss	86.3	2025 - 2027
Foreign Net Operating Loss	325.9	2024 - 2038; Indefinite
Foreign Capital Loss	197.8	Indefinite

Of the $325.9 of foreign net operating loss carryforwards, $128.9 have indefinite carryforward periods.

The valuation allowance was $153.3 and $100.1 as of 30 September 2023 and 2022, respectively. As of 30 September 2023, the balance primarily related to $33.6 of foreign credits and loss carryforwards, $18.7 of U.S. federal foreign income tax credits, $49.4 related to foreign capital losses, and $34.7 related to other charges from our Business and Asset Actions. 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 2023.

Our U.S. federal and U.S. state capital losses primarily related to a loss realized upon the divestiture of our Russian subsidiary in fiscal year 2022. We believe it is more likely than not that we will recognize sufficient U.S. capital gain income in the future to utilize our capital losses before expiration.

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 $8.0 billion as of 30 September 2023. An estimated $749.0 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:

	2023	2022	2021
Unrecognized tax benefits balance at beginning of year	$103.5	$140.3	$237.0
Additions for tax positions of the current year	10.9	7.4	14.5
Additions for tax positions of prior years	1.2	6.6	3.5
Reductions for tax positions of prior years	(6.0)	(15.4)	(8.2)
Settlements	(3.9)	(0.6)	(3.1)
Statute of limitations expiration	(10.6)	(25.5)	(104.6)
Foreign currency translation	1.4	(9.3)	1.2
Unrecognized tax benefits balance at end of year	$96.5	$103.5	$140.3

Of our unrecognized tax benefits as of 30 September 2023, $73.8 would impact the effective tax rate from continuing operations if recognized.

In fiscal year 2022, reserves for unrecognized tax benefits decreased $25.5 due to statute of limitation expirations. We released reserves of $17.2 related to the sale of PMD. Upon release of the reserves, we recorded income tax benefits of $14.8 as a component of discontinued operations. The PMD reserve was net of related deferred tax assets of $2.4. In fiscal year 2023 we released an additional $5.2 of reserves related to the sale of PMD. Fiscal year 2022 also reflects a $15.4 reduction for tax positions of prior years. This was primarily due to a $10.6 reduction caused by changes to income tax rates.

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 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 $5.0, $1.2, and ($0.2) in fiscal years 2023, 2022, and 2021, 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 $26.3 and $22.6 as of 30 September 2023 and 2022, 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 2024 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 - 2023
United States – State	2013 - 2023
Canada	2016 - 2023
Europe
France	2020 - 2023
Netherlands	2018 - 2023
Spain	2017 - 2023
United Kingdom	2020 - 2023
Middle East
Saudi Arabia	2018 - 2023
Asia
China	2011 - 2023
South Korea	2015 - 2023
Taiwan	2018 - 2023
Latin America
Chile	2019 - 2023