Income Taxes

12 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Pretax earnings from continuing operations consist of the following:

	2017		2018	2019
United States	$	1,350	1,652	1,771
Non-U.S.	985		1,015	1,088
Total pretax earnings	$	2,335	2,667	2,859

The principal components of income tax expense follow:

	2017			2018		2019
Current:
U.S. federal	$	351		341		247
State and local	40			52		24
Non-U.S.	311			300		308
Deferred:
U.S. federal	7			(224	)	(2	)
State and local	4			(11	)	12
Non-U.S.	(53		)	(15	)	(58	)
Income tax expense	$	660		443		531

Reconciliations of the U.S. federal statutory income tax rate to the Company's effective tax rate follow. For fiscal 2018, the U.S. federal statutory rate was 35 percent for one quarter and 21 percent for three quarters.

	2017		2018		2019
U.S. federal statutory rate	35.0	%	24.5	%	21.0	%
State and local taxes, net of U.S. federal tax benefit	1.2		1.2		1.0
Non-U.S. rate differential	(3.6	)	0.8		1.8
Non-U.S. tax holidays	(1.0	)	(0.8	)	(1.1	)
U.S. manufacturing deduction	(1.7	)	(1.1	)	—
Foreign derived intangible income	—		—		(1.1	)
Gain on divestiture	—		1.0		—
Subsidiary restructuring	(1.8	)	(2.0	)	(2.6	)
Transition impact of Tax Act	—		(7.1	)	—
Other	0.2		0.1		(0.4	)
Effective income tax rate	28.3	%	16.6	%	18.6	%

On December 22, 2017, the U.S. government enacted tax reform, the Tax Cuts and Jobs Act (the “Act”), which made comprehensive changes to U.S. federal income tax laws by moving from a global to a modified territorial tax regime. The Act includes a reduction of the U.S. corporate income tax rate from 35 percent to 21 percent in calendar year 2018 along with the elimination of certain deductions and credits, and a one-time “deemed repatriation” of accumulated non-U.S. earnings. During 2018, the Company recognized a net tax benefit of $189 ($0.30 per share) due to impacts of the Act, consisting of a $94 benefit on revaluation of net deferred income tax liabilities to the lower tax rate, $35 of expense for the tax on deemed repatriation of accumulated non-U.S. earnings and withholding taxes, and the reversal of $130 accrued in previous periods for the planned repatriation of non-U.S. cash. The Company completed its accounting for the Act in the first quarter of fiscal 2019.

Effective in fiscal 2019, the Act also subjects the Company to U.S. tax on global intangible low-taxed income earned by certain of its non-U.S. subsidiaries. The Company has elected to recognize this tax as a period expense when it is incurred.

Non-U.S. tax holidays reduce tax rates in certain jurisdictions and are expected to expire over the next three years.

Following are changes in unrecognized tax benefits before considering recoverability of any cross-jurisdictional tax credits (U.S. federal, state and non-U.S.) and temporary differences. The amount of unrecognized tax benefits is not expected to change significantly within the next 12 months.

	2018			2019
Unrecognized tax benefits, beginning	$	132		158
Additions for current year tax positions	13			15
Additions for prior year tax positions	8			18
Reductions for prior year tax positions	(8		)	(22	)
Acquisitions and divestitures	21			4
Reductions for settlements with tax authorities	(3		)	(5	)
Reductions for expiration of statutes of limitations	(5		)	(9	)
Unrecognized tax benefits, ending	$	158		159

If none of the unrecognized tax benefits shown is ultimately paid, the tax provision and the calculation of the effective tax rate would be favorably impacted by $124, which is net of cross-jurisdictional tax credits and temporary differences. The Company accrues interest and penalties related to income taxes in income tax expense. Total interest and penalties recognized were $4, $2 and $(1) in 2019, 2018 and 2017, respectively. As of September 30, 2019 and 2018, total accrued interest and penalties were $27 and $23, respectively.

The U.S. is the major jurisdiction for which the Company files income tax returns. U.S. federal tax returns are closed through 2013. The status of state and non-U.S. tax examinations varies due to the numerous legal entities and jurisdictions in which the Company operates.

The principal items that gave rise to deferred income tax assets and liabilities follow:

	2018			2019
Deferred tax assets:
Net operating losses and tax credits	$	396		407
Accrued liabilities	238			228
Postretirement and postemployment benefits	37			36
Employee compensation and benefits	119			110
Pensions	—			95
Other	151			121
Total	$	941		997
Valuation allowances	$	(341	)	(307	)
Deferred tax liabilities:
Intangibles	$	(693	)	(637	)
Pensions	(43		)	—
Property, plant and equipment	(187		)	(195	)
Undistributed non-U.S. earnings	(52		)	(49	)
Other	(35		)	(39	)
Total	$	(1,010	)	(920	)
Net deferred income tax liability	$	(410	)	(230	)

Total income taxes paid were approximately $650, $680 and $1,420 in 2019, 2018 and 2017, respectively. Approximately half of the $407 of net operating losses and tax credits expire over the next 5 years, while most of the remainder can be carried forward indefinitely.