Income Taxes

12 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Pretax earnings consist of the following:

	2019		2020	2021
United States	$	1,771	1,360	1,491
Non-U.S.	1,088		975	1,421
Total pretax earnings	$	2,859	2,335	2,912

The principal components of income tax expense follow:

	2019		2020	2021
Current:
U.S. federal	$	247	123	152
State and local	24		15	26
Non-U.S.	308		288	355
Deferred:
U.S. federal	(2)		(44)	81
State and local	12		1	(2)
Non-U.S.	(58)		(38)	(27)
Income tax expense	$	531	345	585

Reconciliations of the U.S. federal statutory income tax rate to the Company's effective tax rate follow.

	2019		2020		2021
U.S. federal statutory rate	21.0	%	21.0	%	21.0	%
State and local taxes, net of U.S. federal tax benefit	1.0		0.6		0.7
Non-U.S. rate differential	1.8		1.7		2.0
Non-U.S. tax holidays	(1.1)		(1.1)		(0.8)
Research and development credits	(0.3)		(1.8)		(0.6)
Foreign derived intangible income	(1.1)		(1.2)		(1.4)
Subsidiary restructuring	(2.6)		(4.4)		(0.5)
Other	(0.1)		—		(0.3)
Effective income tax rate	18.6	%	14.8	%	20.1	%

The tax rates for 2021, 2020 and 2019 include benefits from restructuring subsidiaries of $13, $103 and $74, respectively. The increase in research and development credits in 2020 was due to the impact of a research and development tax credit study.

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic, and among other things, provides tax relief to businesses. Tax provisions of the CARES Act include the deferral of certain payroll taxes, relief for retaining employees, and other provisions. The Company deferred $73 of certain payroll taxes through the end of calendar year 2020, half of which is due in December 2021 with the remainder due in December 2022.

Non-U.S. tax holidays reduce tax rates in certain jurisdictions and are expected to expire over the next year.

Following are changes in unrecognized tax benefits before considering recoverability of any cross-jurisdictional tax credits (U.S. federal, state and non-U.S.) and temporary differences. The amount of unrecognized tax benefits is expected to be reduced by approximately $50 in the next 12 months.

	2020		2021
Unrecognized tax benefits, beginning	$	159	195
Additions for current year tax positions	25		27
Additions for prior year tax positions	29		17
Reductions for prior year tax positions	(8)		(6)
Acquisitions and divestitures	—		1
Reductions for settlements with tax authorities	—		(5)
Reductions for expiration of statutes of limitations	(10)		(10)
Unrecognized tax benefits, ending	$	195	219

If none of the unrecognized tax benefits shown is ultimately paid, the tax provision and the calculation of the effective tax rate would be favorably impacted by $185, which is net of cross-jurisdictional tax credits and temporary differences. The Company accrues interest and penalties related to income taxes in income tax expense. Total expense (income) recognized from interest and penalties was $(4), $1 and $4 in 2021, 2020 and 2019, respectively. As of September 30, 2021 and 2020, total accrued interest and penalties were $24 and $29, respectively.

The U.S. is the major jurisdiction for which the Company files income tax returns. U.S. federal tax returns are closed by statute for years through 2013. The status of state and non-U.S. tax examinations varies due to the numerous legal entities and jurisdictions in which the Company operates.

The principal items that gave rise to deferred income tax assets and liabilities follow:

	2020		2021
Deferred tax assets:
Net operating losses, capital losses and tax credits	$	487	316
Accrued liabilities	219		216
Postretirement and postemployment benefits	33		29
Employee compensation and benefits	119		149
Pensions	69		—
Other	137		128
Total	$	1,064	838
Valuation allowances	$	(293)	(236)
Deferred tax liabilities:
Intangibles	$	(652)	(787)
Pensions	—		(107)
Property, plant and equipment	(212)		(212)
Undistributed non-U.S. earnings	(36)		(38)
Other	(33)		(54)
Total	$	(933)	(1,198)
Net deferred income tax liability	$	(162)	(596)

Total income taxes paid were approximately $680, $400 and $650 in 2021, 2020 and 2019, respectively. Approximately half of the $316 of net operating losses and tax credits expire over the next 10 years, while most of the remainder can be carried forward indefinitely.