Income Tax

9 Months Ended

Jun. 30, 2022

Income Tax Disclosure [Abstract]

Income Tax

I. Income Tax

Effective Tax Rate

	Three Months Ended June 30						Nine Months Ended June 30
	2022			2021			2022			2021
	(Dollars in millions)
(Provision) benefit for income taxes	$	(49	)	$	(30	)	$	(73	)	$	(93	)
Effective tax rate		32	%		24	%		35	%		27	%

For the three and nine months ended June 30, 2022, the (Provision) benefit for income taxes included a net discrete tax expense of $14 million and a net discrete tax benefit of $22 million, respectively, after valuation allowance. The $22 million net benefit is primarily comprised of a benefit of $36 million related to the Purification Solutions business divestiture, and a tax expense of $8 million related to withholding tax accruals on historic earnings due to changes in indefinite reinvestment assertions on certain entities. For the three and nine months ended June 30, 2021, the (Provision) benefit for income taxes included a net discrete tax expense of $1 million and $2 million, respectively.

In the second quarter of fiscal 2022, Cabot generated a U.S. tax benefit of $183 million from the tax loss related to the divestiture of the Purification Solutions business. This benefit was fully offset with a valuation allowance.

Income tax in Interim Periods

The Company records its tax provision or benefit on an interim basis using an estimated annual effective tax rate. This rate is applied to the current period ordinary income or loss to determine the income tax provision or benefit allocated to the interim period. The income tax effects of unusual or infrequent items are excluded from the estimated annual effective tax rate and are recognized in the impacted interim period. Losses from jurisdictions for which no benefit can be recognized are excluded from the overall computations of the estimated annual effective tax rate and a separate estimated annual effective tax rate is computed and applied to ordinary income or loss in the loss jurisdiction.

Valuation allowances are provided against the future tax benefits that arise from the deferred tax assets in jurisdictions for which no benefit can be recognized. The estimated annual effective tax rate may be significantly impacted by nondeductible expenses and the Company’s projected earnings mix by tax jurisdiction. Adjustments to the estimated annual effective income tax rate are recognized in the period when such estimates are revised.

Uncertainties

Cabot and certain subsidiaries are under audit in a number of jurisdictions. 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 or the lapse of applicable statutes of limitations. However, an estimated range of the impact on the unrecognized tax benefits cannot be quantified at this time.

Cabot files U.S. federal and state and non-U.S. income tax returns in jurisdictions with varying statutes of limitations. The 2018 through 2021 tax years generally remain subject to examination by the IRS and various tax years from 2005 through 2021 remain subject to examination by the respective state tax authorities. In significant non-U.S. jurisdictions, various tax years from 2005 through 2021 remain subject to examination by their respective tax authorities.

During the three and nine months ended June 30, 2022, Cabot released uncertain tax positions of a nil amount and $2 million, respectively, due to the expiration of statutes of limitations in various jurisdictions. During the three and nine months ended June 30, 2021, Cabot released uncertain tax positions of a nil amount and $1 million, respectively, due to the expiration of statutes of limitations in various jurisdictions.