Income Taxes

12 Months Ended

Aug. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Provision for Income Taxes

Income (loss) before income tax expense is summarized below (in millions):

	Fiscal Year Ended August 31,
	2021		2020		2019
Domestic(1)	$	(271)	$	(452)	$	(416)
Foreign(1)	1,215		713		867
Total	$	944	$	261	$	451

(1)Includes the elimination of intercompany foreign dividends paid to the U.S.

Income tax expense (benefit) is summarized below (in millions):

	Fiscal Year Ended August 31,
	2021		2020		2019
Current:
Domestic - federal	$	7	$	(3)	$	(24)
Domestic - state	3		1		1
Foreign	252		180		177
Total current	262		178		154
Deferred:
Domestic - federal	2		(10)		(8)
Domestic - state	—		—		(2)
Foreign	(18)		36		18
Total deferred	(16)		26		8
Total income tax expense	$	246	$	204	$	162

Reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is summarized below:

	Fiscal Year Ended August 31,
	2021		2020		2019
U.S. federal statutory income tax rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal tax benefit	0.2		(2.6)		(1.7)
Impact of foreign tax rates(1)(2)	(4.6)		(0.9)		(9.9)
Permanent differences	(0.4)		3.2		1.8
Income tax credits(1)	(0.4)		(2.5)		(3.1)
Changes in tax rates on deferred tax assets and liabilities(3)	—		10.3		0.2
One-time transition tax related to the Tax Act	—		—		(0.5)
Indefinite reinvestment assertion impact	—		—		0.9
Valuation allowance(4)	1.3		16.8		1.3
Non-deductible equity compensation	0.6		2.2		1.4
Impact of intercompany charges and dividends	4.4		15.0		10.4
Global Intangible Low-Taxed Income	3.0		13.7		10.4
Other, net	0.9		2.0		3.6
Effective income tax rate	26.0	%	78.2	%	35.8	%

(1)The Company has been granted tax incentives for various subsidiaries in China, Malaysia, Singapore and Vietnam, which primarily expire at various dates through fiscal year 2031 and are subject to certain conditions with which the Company expects to comply. These tax incentives resulted in a tax benefit of approximately $51 million ($0.34 per basic share), $43 million ($0.28 per basic share) and $67 million ($0.43 per basic share) during the fiscal years ended August 31, 2021, 2020 and 2019, respectively.

(2)For the fiscal year ended August 31, 2021, the increase in the impact of foreign tax rates was primarily related to increased income in low tax rate jurisdictions. For the fiscal year ended August 31, 2020, the decrease in the impact of foreign tax rates was primarily related to decreased income in low tax rate jurisdictions. For the fiscal year ended August 31, 2019, the decrease in the impact of foreign tax rates was primarily due to a decrease in the U.S. federal statutory income tax rate due to the Tax Cuts and Jobs Act of 2017 (“Tax Act”).

(3)For the fiscal year ended August 31, 2020, the increase in the changes in tax rates on deferred tax assets and liabilities was primarily due to the re-measurement of deferred tax assets related to an extension of a non-U.S. tax incentive of $21 million.

(4)The valuation allowance change for the fiscal years ended August 31, 2021 and 2020 was primarily due to the change in deferred tax assets for sites with existing valuation allowances. The valuation allowance change for the fiscal year ended August 31, 2019 was primarily due to utilization of domestic federal net operating losses and tax credits against the one-time transition tax. The increase for the fiscal year ended August 31, 2019 was partially offset by an income tax benefit of $18 million for the reversal of a U.S. valuation allowance due to an intangible asset reclassification from indefinite-life to finite-life.

Deferred Tax Assets and Liabilities

Significant components of the deferred tax assets and liabilities are summarized below (in millions):

	Fiscal Year Ended August 31,
	2021		2020
Deferred tax assets:
Net operating loss carryforwards	$	200	$	198
Receivables	8		8
Inventories	14		11
Compensated absences	13		12
Accrued expenses	115		85
Property, plant and equipment	71		42
Domestic tax credits	11		29
Foreign jurisdiction tax credits	10		15
Equity compensation	10		11
Domestic interest carryforwards	4		5
Cash flow hedges	10		9
Capital loss carryforwards	20		20
Revenue recognition	36		43
Operating and finance lease liabilities	60		89
Other	19		19
Total deferred tax assets before valuation allowances	601		596
Less valuation allowances	(353)		(341)
Net deferred tax assets	$	248	$	255
Deferred tax liabilities:
Unremitted earnings of foreign subsidiaries	60		77
Intangible assets	27		32
Operating lease assets	92		83
Other	4		13
Total deferred tax liabilities	$	183	$	205
Net deferred tax assets	$	65	$	50

Based on the Company’s historical operating income, projection of future taxable income, scheduled reversal of taxable temporary differences, and tax planning strategies, management believes it is more likely than not that the Company will realize the benefit of its deferred tax assets, net of valuation allowances recorded.

As of August 31, 2021, the Company intends to indefinitely reinvest the remaining earnings from its foreign subsidiaries for which a deferred tax liability has not already been recorded. The accumulated earnings are the most significant component of the basis difference which is indefinitely reinvested. As of August 31, 2021, the indefinitely reinvested earnings in foreign subsidiaries upon which taxes had not been provided were approximately $2.4 billion. The estimated amount of the unrecognized deferred tax liability on these reinvested earnings was approximately $0.1 billion.

Tax Carryforwards

The amount and expiration dates of income tax net operating loss carryforwards, tax credit carryforwards, and tax capital loss carryforwards, which are available to reduce future taxes, if any, as of August 31, 2021 are as follows:

(dollars in millions)	Last Fiscal Year of Expiration	Amount
Income tax net operating loss carryforwards:(1)
Domestic - state	2041 or indefinite	$	56
Foreign	2031 or indefinite	$	646
Tax credit carryforwards:(1)
Domestic - federal	2031	$	8
Domestic - state	2027 or indefinite	$	3
Foreign(2)	2027 or indefinite	$	10
Tax capital loss carryforwards:(3)
Domestic - federal	2026	$	77

(1)Net of unrecognized tax benefits.

(2)Calculated based on the deferral method and includes foreign investment tax credits.

(3)The tax capital loss carryforwards were primarily from an impairment of an investment that was deemed worthless for tax purposes.

Unrecognized Tax Benefits

Reconciliation of the unrecognized tax benefits is summarized below (in millions):

	Fiscal Year Ended August 31,
	2021		2020		2019
Beginning balance	$	190	$	164	$	257
Additions for tax positions of prior years	15		10		20
Reductions for tax positions of prior years(1)	(3)		(9)		(106)
Additions for tax positions related to current year(2)	36		27		36
Cash settlements	—		(1)		—
Reductions from lapses in statutes of limitations	(2)		(1)		(3)
Reductions from non-cash settlements with taxing authorities(3)	—		(2)		(36)
Foreign exchange rate adjustment	5		2		(4)
Ending balance	$	241	$	190	$	164
Unrecognized tax benefits that would affect the effective tax rate (if recognized)	$	139	$	109	$	93

(1)The reductions for tax positions of prior years for the fiscal year ended August 31, 2019 are primarily related to a non-U.S. taxing authority ruling related to certain non-U.S. net operating loss carryforwards, offset with a valuation allowance and the impacts of the Tax Act.

(2)The additions for the fiscal years ended August 31, 2021 and 2020 are primarily related to taxation of certain intercompany transactions. The additions for the fiscal year ended August 31, 2019 are primarily related to the impacts of the Tax Act and taxation of certain intercompany transactions.

(3)The reductions from settlements with taxing authorities for the fiscal year ended August 31, 2019 are primarily related to the settlement of a U.S. audit.

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The Company’s accrued interest and penalties were approximately $30 million and $23 million as of August 31, 2021 and 2020, respectively. The Company recognized interest and penalties of approximately $7 million, $4 million and $(2) million during the fiscal years ended August 31, 2021, 2020 and 2019, respectively.

It is reasonably possible that the August 31, 2021 unrecognized tax benefits could decrease during the next 12 months by $19 million, primarily related to a taxing authority agreement associated with intercompany transactions.

The Company is no longer subject to U.S. federal tax examinations for fiscal years before August 31, 2015. In major non-U.S. and state jurisdictions, the Company is no longer subject to income tax examinations for fiscal years before August 31, 2011 and August 31, 2009, respectively.