On 22 December 2017, the United States enacted the U.S. Tax Cuts and Jobs Act (the “Tax Act” or "Tax Reform"), which significantly changed existing U.S. tax laws, including a reduction in the federal corporate income tax rate from 35% to 21%, a deemed repatriation tax on unremitted foreign earnings, as well as other changes. Our consolidated income statements reflect a discrete net income tax expense of $43.8 and $180.6 in fiscal years 2019 and 2018, respectively, related to impacts of the Tax Act.

In fiscal year 2019, our income tax expense reflects the reversal of a non-recurring $56.2 benefit recorded in fiscal year 2018 related to the U.S. taxation of deemed foreign dividends. This was partially offset by a benefit of $12.4 to reduce the total expected costs of the deemed repatriation tax. The non-recurring benefit recorded in fiscal year 2018 was eliminated by regulations issued in fiscal year 2019.

In fiscal year 2018, our consolidated income statements reflect a discrete net income tax expense of $180.6 and a $28.5 reduction to equity affiliates' income for the impacts of the Tax Act. The income tax expense of $180.6 included a cost of $392.4, which included $322.1 for the deemed repatriation tax and $70.3 primarily for additional foreign taxes on the repatriation of foreign earnings. This cost was partially offset by a $211.8 benefit primarily from the re-measurement of our net U.S. deferred tax liabilities at the lower corporate tax rate. The deemed repatriation tax of $322.1 included the $56.2 non-recurring benefit related to the U.S. taxation of deemed foreign dividends that was eliminated in 2019. We have historically asserted our intention to indefinitely reinvest foreign earnings in certain foreign subsidiaries. We reevaluated our historic assertions as a result of enactment of the Tax Act and adjusted our position relative to the indefinitely reinvested earnings of various foreign subsidiaries. The impact of these changes is included in the $70.3 for additional foreign taxes on the repatriation of foreign earnings recorded in fiscal year 2018.

As of 30 September 2020, the remaining balance of the deemed repatriation tax obligation is $211.4, $190.9 of which is presented on our consolidated balance sheets in noncurrent liabilities. We are paying the obligation in installments over six remaining years.

While our accounting for the provisions of the Tax Act is not provisional, further adjustments to the deemed repatriation tax could result from future U.S. or foreign tax examinations of the years impacted by the calculation or from the issuance of additional federal or state guidance.

As a fiscal year-end taxpayer, certain provisions of the Tax Act became effective in our fiscal year 2018 while other provisions did not become effective until fiscal year 2019. The corporate tax rate reduction was effective as of 1 January 2018 and, accordingly, reduced our 2018 fiscal year U.S. federal statutory rate to a blended rate of approximately 24.5%. The 21.0% federal tax rate applied to our fiscal year ended 30 September 2019 and each year thereafter.


	2020	2019	2018
Current Tax Provision
Federal	$26.9	$163.7	$305.1
State	23.8	23.3	17.7
Foreign	262.7	235.5	256.9
Total Current Tax Provision	313.4	422.5	579.7
Deferred Tax Provision
Federal	108.8	9.7	(121.7)
State	(3.6)	2.4	12.5
Foreign	59.8	45.5	53.8
Total Deferred Tax Provision	165.0	57.6	(55.4)
Total Income Tax Provision	$478.4	$480.1	$524.3

The effective tax rate equals the income tax provision divided by income from continuing operations before taxes. A reconciliation of the differences between the United States federal statutory tax rate and the effective tax rate is as follows:


(Percent of income before taxes)	2020		2019		2018
U.S. federal statutory tax rate	21.0	%	21.0	%	24.5	%
State taxes, net of federal benefit	0.6		1.0		1.0
Income from equity affiliates	(2.3)		(2.0)		(2.1)
Foreign tax differentials	0.1		1.0		(1.0)
Tax on foreign repatriated earnings	0.9		0.1		(0.4)
Share-based compensation	(0.8)		(0.6)		(1.0)
Tax reform repatriation	—		1.9		19.5
Tax reform rate change and other	—		—		(11.1)
Tax restructuring benefit	—		—		(1.8)



Domestic production activities	—		—		(0.4)
Other	0.2		(1.4)		(1.2)
Effective Tax Rate	19.7	%	21.0	%	26.0	%

Foreign tax differentials represent the differences between foreign earnings subject to foreign tax rates that are different than the U.S. federal statutory rate and include tax holidays and incentives. As a result of the Tax Act, our effective non-U.S. tax rates in fiscal years 2020 and 2019 are higher than our statutory rate of 21.0% in those years. Our income tax holidays relate to operations in jurisdictions that provide reduced income tax rates for certain qualifying activities and are conditional upon us meeting certain operating thresholds. The impact of these tax holidays decreased income tax expense by $26.9 ($0.12 per share) in fiscal year 2020, primarily related to a preferential tax rate in China that is effective until 31 December 2030. This includes the impact of remeasurement of the deferred tax assets and liabilities due to an extension of the holiday period in China. The impact of tax holidays in fiscal years 2019 and 2018 were not material.

Tax on foreign repatriated earnings includes benefits and costs related to U.S. and additional foreign taxation on the current and future repatriation of foreign earnings and a U.S. benefit for related foreign tax credits. The enactment of the India Finance Act 2020, increased income tax expense by $20.3 and increased equity affiliate income by $33.8 for changes in the future tax costs of repatriated earnings. In addition, the Tax Act included new provisions related to the taxation of foreign operations, known as Global Intangible Low Tax Income (“GILTI”). We have elected as an accounting policy to account for GILTI as a period cost when incurred. This and various other provisions of the Tax Act did not become effective until fiscal year 2019 and did not impact our tax provision in fiscal year 2018.


30 September	2020	2019
Gross Deferred Tax Assets
Retirement benefits and compensation accruals	$209.0	$227.1
Tax loss carryforwards	112.6	140.6
Tax credits and other tax carryforwards	40.3	31.1
Reserves and accruals	67.0	69.6

Currency losses	30.4	—
Other	64.6	57.7
Valuation allowance	(95.0)	(92.1)
Deferred Tax Assets	428.9	434.0
Gross Deferred Tax Liabilities
Plant and equipment	1,110.9	954.6

Currency gains	—	23.9
Unremitted earnings of foreign entities	58.7	31.0
Partnership and other investments	19.3	14.8
Intangible assets	83.6	80.0
Other	3.9	8.3
Deferred Tax Liabilities	1,276.4	1,112.6
Net Deferred Income Tax Liability	$847.5	$678.6

Deferred tax liabilities related to plant and equipment increased due to the impact of accelerated tax depreciation deductions in excess of book depreciation primarily in the United States. The deferred tax component for currency transactions moved into an overall deferred tax asset position due primarily to currency movements on hedging transactions as several foreign based currencies strengthened against the U.S. dollar in fiscal year 2020. We also realized a deferred tax liability related to the unrealized foreign exchange gain for a euro denominated financial instrument. Unremitted earnings of foreign entities increased primarily as a result of the enactment of the India Finance Act 2020 which increased the future tax costs of repatriated earnings.

In fiscal year 2020, the U.S. Federal capital losses increased by $22.6 primarily due to the recognition of a capital loss for the liquidation of a foreign subsidiary. Of the $236.6 of foreign net operating loss carryforwards, $83.1 have indefinite carryforward periods. Foreign net operating losses decreased by $116.0 in fiscal year 2020 primarily due to utilization in China and a tax election in India that reduced tax loss carryforwards and decreased plant and equipment net deferred tax liabilities.

The valuation allowance was $95.0 and $92.1 as of 30 September 2020 and 2019, respectively. As of 30 September 2020, the balance primarily related to $40.3 of foreign credits and loss carryforwards as well as $52.2 related to foreign capital losses that were generated from the loss recorded on the exit from the Energy-from-Waste project in 2016. If events warrant the reversal of the valuation allowance, it would result in a reduction of tax expense. We believe it is more likely than not that future earnings and reversal of deferred tax liabilities will be sufficient to utilize our deferred tax assets, net of existing valuation allowance, as of 30 September 2020.

As a result of the Tax Act, we recorded $373.2 of federal income tax from the deemed repatriation tax on approximately $5.8 billion of previously undistributed earnings from our foreign subsidiaries and corporate joint ventures. These earnings are now eligible to be repatriated to the U.S. with reduced U.S. tax impacts. However, such earnings may be subject to foreign withholding and other taxes. We record foreign and U.S. income taxes on the undistributed earnings of our foreign subsidiaries and corporate joint ventures unless those earnings are indefinitely reinvested. The cumulative undistributed earnings that are considered to be indefinitely reinvested in foreign subsidiaries and corporate joint ventures are included in retained earnings on the consolidated balance sheets and amounted to $4.7 billion as of 30 September 2020. An estimated $454.4 in additional foreign withholding and other income taxes would be due if these earnings were remitted as dividends.


	2020	2019	2018
Unrecognized tax benefits balance at beginning of year	$231.7	$233.6	$146.4
Additions for tax positions of the current year	7.6	7.8	26.4
Additions for tax positions of prior years	17.7	14.2	119.2
Reductions for tax positions of prior years	(4.1)	(14.7)	(41.3)
Settlements	(1.2)	(1.5)	(14.2)
Statute of limitations expiration	(14.0)	(3.9)	(2.6)
Foreign currency translation	(0.7)	(3.8)	(0.3)
Unrecognized tax benefits balance at end of year	$237.0	$231.7	$233.6

As of 30 September 2020 and 2019, we had $237.0 and $231.7 of unrecognized tax benefits, excluding interest and penalties, respectively. Of these benefits, $86.1 and $75.0 as of 30 September 2020 and 2019, respectively, would impact the effective tax rate from continuing operations if recognized.

Interest and penalties related to unrecognized tax benefits are recorded as a component of income tax expense and totaled $6.1, $12.0, and ($2.4) in fiscal years 2020, 2019, and 2018, respectively. Our accrued balance for interest and penalties was $25.2 and $19.5 as of 30 September 2020 and 2019, respectively.

In fiscal year 2018, $119.2 in additions for tax positions of prior years related primarily to uncertain state tax filing positions taken related to the sale of our former Performance Materials Division in fiscal year 2017. Additions for tax positions of the current year in fiscal year 2018 of $26.4 included uncertain tax positions related to the restructuring of foreign subsidiaries and reserves for ongoing transfer pricing uncertainties.

In fiscal year 2018, we received a final audit settlement agreement that resolved uncertainties related to unrecognized tax benefits of $43.1, including interest. This settlement primarily related to tax positions taken in conjunction with the disposition of our Homecare business in 2012. As a result, we recorded an income tax benefit of $25.6, including interest, in income from discontinued operations during 2018. The settlement also resulted in an income tax benefit of approximately $9.1, including interest, in continuing operations for the release of tax reserves on other matters.

We are currently under examination in a number of tax jurisdictions, some of which may be resolved in the next twelve months. As a result, it is reasonably possible that a change in the unrecognized tax benefits may occur during the next twelve months. However, quantification of an estimated range cannot be made as of the date of this report.


Major Tax Jurisdiction			Open Tax Years
North America
United States – Federal			2017 - 2020
United States – State			2012 - 2020
Canada			2015 - 2020
Europe
France			2017 - 2020
Germany			2017 - 2020
Netherlands			2016 - 2020
Spain			2015 - 2020
United Kingdom			2016 - 2020
Asia
China			2015 - 2020
South Korea			2010 - 2020
Taiwan			2015 - 2020
Latin America
Chile			2017 - 2020