The reduction in U.S. federal corporate statutory tax rate from 35% to 21% was effective January 1, 2018. The Tax Act requires companies with a fiscal year that begins before and ends after the effective date of the rate change to calculate a blended tax rate based on the pro rata number of days in the fiscal year before and after the effective date. As a result, for the fiscal year ending September 30, 2018, the Company’s U.S. federal statutory income tax rate was 24.5%. For the fiscal years ending September 30, 2020 and 2019, the Company was subject to the U.S. federal corporate statutory tax rate of 21%.

The reduction in the U.S. federal corporate statutory tax rate required the Company to adjust its U.S. deferred tax assets and liabilities using the newly enacted tax rate of 21%. As a result, the Company recorded a U.S. income tax expense of $23 million for the reduction of its net U.S. deferred tax assets for the fiscal year ended September 30, 2018.

The Company has not recorded any income tax liability related to the one-time transition tax on accumulated foreign earnings (“Transition Tax”) due to an overall deficit in accumulated foreign earnings. GILTI, FDII and BEAT are effective for the Company’s fiscal year ending September 30, 2019. The Company has elected to recognize the GILTI impact in the specific period in which it occurs.


	Fiscal Year Ended September 30,
	2020		2019		2018
	(in millions)
Domestic	$	(655)	$	84	$	347
Foreign	208		183		95
(Loss) income before income taxes	$	(447)	$	267	$	442


	Fiscal Year Ended September 30,
	2020		2019		2018
	(in millions)
Federal:
Current	$	3	$	—	$	—
Deferred	(28)		(49)		91
Foreign:
Current (a)	74		74		58
Deferred	(28)		(18)		(26)
U.S. State:
Current	3		3		6
Deferred	(1)		(1)		1
Income tax expense	$	23	$	9	$	130

The differences between the U.S. federal statutory income tax rate of 21.0%, 21.0% and 24.5% for the fiscal years ended September 30, 2020, 2019 and 2018, respectively, and income taxes provided are as follows:


	Fiscal Year Ended September 30,
	2020		2019		2018
	(in millions)
Taxes on income at the U.S. federal statutory rate	$	(94)	$	56	$	108
U.S. state and local taxes	2		2		7
Foreign income taxed at different rates, including withholding taxes	10		16		19
Increase in valuation allowance	1		1		4
Release of valuation allowance	(38)		(65)		(14)
Change in tax rates	4		(4)		23
Impact of GILTI and FDII	2		(4)		—
Intergroup transfer	—		—		(30)
IPO Costs	22		—		—
Executive Compensation	2		—		—
Non-deductible long term incentive plan	112		6		8
Other	—		1		5
Income tax expense	$	23	$	9	$	130

During the fiscal year ended September 30, 2020, the Company recognized a net U.S. tax benefit of $25 million primarily related to the release of a U.S. deferred tax valuation allowance of $33 million offset by a write-off of expiring foreign tax credits of $10 million and a tax benefit of $15 million for the release of valuation allowances in Japan and various foreign jurisdictions. During the fiscal year ended September 30, 2019, the Company recognized a U.S. tax benefit of $59 million related to the release of valuation allowance on U.S. foreign tax credits. During the fiscal year ended September 30, 2018, the Company recognized a U.S. tax expense of $23 million related to the reductions of net U.S. deferred tax assets as a result of the Tax Act.

For the fiscal years ended September 30, 2020 and September 30, 2019, the Company incurred losses in certain foreign territories and has offset the tax benefit associated with these losses with a valuation allowance as the Company has determined that it is more likely than not that these losses will not be utilized. For the fiscal year ended September 30, 2020 and September 30, 2019, the Company released $33 million and $59 million, respectively of the U.S. valuation allowance related to foreign tax credit carryforwards. Significant components of the Company’s net deferred tax liabilities are summarized below:


	September 30, 2020		September 30, 2019
	(in millions)
Deferred tax assets:
Allowances and reserves	$	30	$	27
Employee benefits and compensation	80		79
Other accruals	19		17
Tax attribute carryforwards	168		203
Other	22		3
Total deferred tax assets	319		329
Less: Valuation allowance	(45)		(91)
Deferred tax assets, net of valuation allowance	274		238

Deferred tax liabilities:
Intangible assets	(369)		(372)
Total deferred tax liabilities	(369)		(372)
Net deferred tax liabilities	$	(95)	$	(134)

During the fiscal year ended September 30, 2020, as a result of final regulations regarding the interest expense allocation rules issued by the Internal Revenue Service in December of 2019, the Company concluded that it is more likely than not that the entire amount of the Company’s deferred tax assets related to foreign tax credits carryforwards in the U.S. will be realized. The current levels of pre-tax income are sufficient to generate the minimum amount of future taxable income needed to support U.S. deferred tax

assets realization. In the fiscal year ended September 30, 2019, the Company concluded that the positive evidence relating to the utilization of foreign tax credits outweighs the negative evidence with respect to a portion of the valuation allowance on its foreign tax credit carryovers and released $59 million of its valuation allowance.

At September 30, 2020, the Company has no remaining U.S. federal tax net operating loss carryforwards. The Company also has tax net operating loss carryforwards, with no expiration date, in France and Spain of $78 million and $29 million, respectively, and other tax net operating loss carryforwards in state, local and foreign jurisdictions that expire in various periods. In addition, the Company has foreign tax credit carryforwards for U.S. tax purposes of $94 million. The U.S. foreign tax credits will begin to expire in fiscal year 2021.

Deferred income taxes have not been recorded on indefinitely reinvested earnings of certain foreign subsidiaries of approximately $234 million at September 30, 2020. Distribution of these earnings may result in foreign withholding taxes and U.S. state taxes. However, variables existing if and when remittance occurs make it impracticable to estimate the amount of the ultimate tax liability, if any, on these accumulated foreign earnings.

The Company classifies interest and penalties related to uncertain tax position as a component of income tax expense. As of September 30, 2020 and September 30, 2019, the Company had accrued $4 million and $3 million of interest and penalties, respectively.


Balance at September 30, 2017	$	19
Additions for current year tax positions	3
Additions for prior year tax positions	3
Subtractions for prior year tax positions	(7)
Balance at September 30, 2018	$	18

Additions for prior year tax positions	1
Subtractions for prior year tax positions	(7)
Balance at September 30, 2019	$	12
Additions for prior year tax positions	3
Subtractions for prior year tax positions	(3)
Balance at September 30, 2020	$	12

Included in the total unrecognized tax benefits at September 30, 2020 and September 30, 2019 are $12 million and $12 million, respectively, that if recognized, would reduce the effective income tax rate. The Company has determined that is reasonably possible that its existing reserve for uncertain tax positions as of September 30, 2020 could decrease by up to approximately $2 million related to various ongoing audits and settlement discussions in various foreign jurisdictions.

The Company and its subsidiaries file income tax returns in the U.S. and various foreign jurisdictions. The Company has completed tax audits in the U.S. for tax years ended through September 30, 2013, in the U.K. for the tax years ended through September 30, 2017, in Germany for the tax years ended through September 30, 2014 and in France for the tax years ended through September 30, 2018. The Company is at various stages in the tax audit process in certain foreign and local jurisdictions.