Income Taxes

12 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Pretax earnings consist of the following:

	2020		2021	2022
United States	$	1,360	1,491	2,684
Non-U.S.	975		1,421	1,401
Total pretax earnings	$	2,335	2,912	4,085

The principal components of income tax expense follow:

	2020		2021	2022
Current:
U.S. federal	$	123	152	511
State and local	15		26	60
Non-U.S.	288		355	400
Deferred:
U.S. federal	(44)		81	(101)
State and local	1		(2)	(13)
Non-U.S.	(38)		(27)	(2)
Income tax expense	$	345	585	855

Reconciliations of the U.S. federal statutory income tax rate to the Company's effective tax rate follow.

	2020		2021		2022
U.S. federal statutory rate	21.0	%	21.0	%	21.0	%
State and local taxes, net of U.S. federal tax benefit	0.6		0.7		0.8
Non-U.S. rate differential	1.7		2.0		1.6
Non-U.S. tax holidays	(1.1)		(0.8)		(0.9)
Research and development credits	(1.8)		(0.6)		(0.3)
Foreign derived intangible income	(1.2)		(1.4)		(1.4)
Gain on divestiture	—		—		(1.1)
Russia business exit	—		—		1.2
Subsidiary restructuring	(4.4)		(0.5)		(0.3)
Other	—		(0.3)		0.3
Effective income tax rate	14.8	%	20.1	%	20.9	%

The tax rates for 2022, 2021 and 2020 include benefits from restructuring subsidiaries of $11, $13 and $103, respectively. The impact on the 2022 tax rate from the gain on divestiture of the Therm-O-Disc business and the Russia business exit in 2022 essentially offset. The lower rate in 2020 included the impact of a research and development tax credit study.

The Company has elected to recognize the tax on global intangible low-taxed income earned by certain of its non-U.S. subsidiaries as a period expense when it is incurred.

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic, and among other things, provides tax relief to businesses. Tax provisions of the CARES Act include the deferral of certain payroll taxes, relief for retaining employees, and other provisions. The Company deferred $73 of certain payroll taxes through the end of calendar year 2020, of which approximately $37 was paid in December 2021 with the remaining amount due in December 2022.

Non-U.S. tax holidays reduce tax rates in certain jurisdictions. Approximately half of the tax holidays expired by September 2022, with the remaining expiring over the next 8 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 in the next 12 months.

	2021		2022
Unrecognized tax benefits, beginning	$	195	219
Additions for current year tax positions	27		25
Additions for prior year tax positions	17		9
Reductions for prior year tax positions	(6)		(65)
Acquisitions and divestitures	1		1
Reductions for settlements with tax authorities	(5)		—
Reductions for expiration of statutes of limitations	(10)		(11)
Unrecognized tax benefits, ending	$	219	178

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 $151, 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 expense (income) recognized was $(6), $(4) and $1 in 2022, 2021 and 2020, respectively. As of September 30, 2022 and 2021, total accrued interest and penalties were $24 and $24, respectively.

The U.S. is the major jurisdiction for which the Company files income tax returns. Examinations for U.S. federal are complete through 2017, except for 2014. 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:

	2021		2022
Deferred tax assets:
Net operating losses, capital losses and tax credits	$	316	212
Accrued liabilities	216		217
Postretirement and postemployment benefits	29		21
Employee compensation and benefits	149		125
Other	128		135
Total	$	838	710
Valuation allowances	$	(236)	(174)
Deferred tax liabilities:
Intangibles	$	(787)	(1,633)
Pensions	(107)		(119)
Property, plant and equipment	(212)		(208)
Undistributed non-U.S. earnings	(38)		(37)
Other	(54)		(160)
Total	$	(1,198)	(2,157)
Net deferred income tax liability	$	(596)	(1,621)

Total income taxes paid were approximately $720, $680 and $400 in 2022, 2021 and 2020, respectively. Approximately two-thirds of the $212 of net operating losses can be carried forward indefinitely, while most of the remainder expire over the next 10 years.