Income Taxes
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Sep. 30, 2014
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | 22. INCOME TAXES
Income tax payments, net of refunds, were $160.6 in 2014, $325.5 in 2013, and $255.7 in 2012. In 2014, the effective tax rate was impacted by losses from transactions and a tax election made with respect to a non-U.S. subsidiary resulting in an income tax benefit of $51.6. This benefit was partially offset by income tax expense of $20.6 related to the recent tax reform legislation enacted in Chile. The effective tax rate was also impacted by the goodwill impairment charge of $305.2 that was not deductible for tax purposes. See Note 9, Goodwill, for additional information regarding the impairment charge.
Gross federal loss and tax credit carryforwards as of 30 September 2014 were $156.9 and $30.1, respectively. The federal loss carryforward is primarily a capital loss due to the tax election related to a non-U.S. subsidiary. This capital loss expires in 2019. The federal tax credit carryforwards have expiration periods between 2023 and 2033. Gross state loss and tax credit carryforwards as of 30 September 2014 were $372.2 and $4.0, respectively. The state tax carryforwards have expiration periods between 2015 and 2034. Gross foreign loss and tax credit carryforwards as of 30 September 2014 were $228.3 and $44.0, respectively. Foreign tax carryforwards of $162.5 have expiration periods between 2015 and 2030; the remainder have unlimited carryforward periods. The valuation allowance as of 30 September 2014 primarily related to the tax benefit of the federal capital loss carryforward of $53.9 and the foreign loss carryforwards of $40.6. The increase in the valuation allowance was primarily due to the capital loss generated from the tax election related to a non-U.S. subsidiary. If events warrant the reversal of the $103.8 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 asset, net of existing valuation allowance, at 30 September 2014. We record U.S. income taxes on the undistributed earnings of our foreign subsidiaries and corporate joint ventures unless those earnings are permanently reinvested outside of the U.S. These cumulative undistributed earnings that are considered to be permanently reinvested in foreign subsidiaries and corporate joint ventures are included in retained earnings on the consolidated balance sheets and amounted to $5,894.2 as of 30 September 2014. An estimated $1,466.2 in U.S. income and foreign withholding taxes would be due if these earnings were remitted as dividends after payment of all deferred taxes. As more than 80% of the undistributed earnings are in countries with a statutory tax rate of 24% or higher, we do not generate a disproportionate amount of taxable income in countries with very low tax rates.
At 30 September 2014 and 2013, we had $108.7 and $124.3 of unrecognized tax benefits, excluding interest and penalties, of which $66.5 and $63.1, respectively, would impact the effective tax rate if recognized. Interest and penalties related to unrecognized tax benefits are recorded as a component of income tax expense and totaled $1.2 in 2014, $2.4 in 2013, and $(26.1) in 2012. Our accrued balance for interest and penalties was $9.3 and $8.1 in 2014 and 2013, respectively. We were challenged by the Spanish tax authorities over income tax deductions taken by certain of our Spanish subsidiaries during fiscal years 2005–2011. In November 2011, we reached a settlement with the Spanish tax authorities for €41.3 million ($56) in resolution of all tax issues under examination. This settlement increased our income tax expense for the fiscal year ended 30 September 2012 by $43.8 ($.20 per share) and had a 3.3% impact on our effective tax rate. As a result of this settlement, we recorded a reduction in unrecognized tax benefits of $6.4 for tax positions taken in prior years and $11.0 for settlements. On 25 January 2012, the Spanish Supreme Court released its decision in favor of our Spanish subsidiary related to certain tax transactions for years 1991 and 1992, a period before we controlled this subsidiary. As a result, in the second quarter of 2012, we recorded a reduction in income tax expense of $58.3 ($.27 per share), resulting in a 4.4% reduction in our effective tax rate for the fiscal year ended 30 September 2012. As a result of this ruling, we recorded a reduction in unrecognized tax benefits of $38.3 for tax positions taken in prior years. During the third quarter of 2012, our unrecognized tax benefits increased $33.3 as a result of certain tax positions taken in conjunction with the disposition of our Homecare business. When resolved, these benefits will be recognized in “Income from discontinued operations, net of tax” on our consolidated income statements and will not impact our effective tax rate. For additional information, see Note 3, Discontinued Operations. We are also 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 at this time.
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