K. Income Tax

Effective Tax Rate

	Three Months Ended June 30						Nine Months Ended June 30
	2015			2014			2015			2014
	(Dollars in millions)						(Dollars in millions)
(Benefit) Provision for income taxes	$	(64	)	$	20		$	(47	)	$	51
Effective tax rate		13	%		25	%		11	%		22	%

During the third quarter of fiscal 2015, the Company recorded charges related to the impairment of goodwill and long-lived assets of the Purification Solutions segment as disclosed in Note F. Prior to the impairment, the Company had recorded deferred tax liabilities for the difference in the tax basis and book basis for certain of these long-lived assets. As a result of the $209 million impairment charge and reduction in the book basis of these assets, the Company recorded a corresponding decrease in deferred tax liabilities, as there was no change in tax basis of these assets due to the book impairment, and recorded a tax benefit of $80 million. The $353 million goodwill impairment charge was related to goodwill, which is non-deductible for tax purposes, and therefore there was no tax impact related to this impairment charge. As a result, the Company’s effective tax rate was significantly lower for both the three and nine month periods ending June 30, 2015 than for the comparable periods in fiscal 2014.

Uncertainties

Cabot files U.S. federal and state and non-U.S. income tax returns in jurisdictions with varying statutes of limitations. The 2012 through 2014 tax years remain subject to examination by the United States Internal Revenue Service (“IRS”) and various tax years from 2005 through 2014 remain subject to examination by the respective state tax authorities. In significant non-U.S. jurisdictions, various tax years from 2004 through 2014 remain subject to examination by their respective tax authorities. Cabot’s significant non-U.S. jurisdictions include China, France, Germany, Italy, Japan, and the Netherlands.

Certain Cabot subsidiaries are under audit in jurisdictions outside of the U.S. In addition, certain statutes of limitations are scheduled to expire in the near future. It is reasonably possible that a change in the unrecognized tax benefits may also occur within the next twelve months related to the settlement of one or more of these audits, however, an estimated range of the impact on the unrecognized tax benefits cannot be quantified at this time.

During the three and nine months ended June 30, 2015, Cabot released uncertain tax positions of less than $1 million and approximately $13 million, respectively, due to the expirations of statutes of limitations in various jurisdictions. As of October 1, 2014, Cabot adopted a new accounting standard which requires, unless certain conditions exist, an unrecognized tax benefit or a portion of an unrecognized tax benefit be presented in the consolidated financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, similar to a tax loss or a tax credit carryforward. This resulted in a reduction of the liability for uncertain tax positions and deferred tax assets of $5 million.