Income Taxes

9 Months Ended

Jun. 30, 2020

In calculating the provision for income taxes, the Company uses an estimate of the annual effective tax rate based upon the facts and circumstances known at each interim period. On a quarterly basis, the actual effective tax rate is adjusted, as appropriate, based upon changed facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and each interim period thereafter.

The statutory tax rate in Ireland is being used as a comparison since the Company is domiciled in Ireland. For the three months ended June 30, 2020, the Company's effective tax rate for continuing operations was 1% and was lower than the statutory tax rate of 12.5% primarily due to tax audit reserve adjustments, the income tax effects of mark-to-market adjustments and the benefits of continuing global tax planning initiatives, partially offset by the tax impact of an impairment charge and tax rate differentials. For the nine months ended June 30, 2020, the Company's effective tax rate for continuing operations was 20% and was higher than the statutory tax rate of 12.5% primarily due to a discrete tax charge

related to the remeasurement of deferred tax assets and liabilities as a result of Swiss tax reform, the tax impact of an impairment charge and tax rate differentials, partially offset by tax audit reserve adjustments, the income tax effects of mark-to-market adjustments and the benefits of continuing global tax planning initiatives. For the three months ended June 30, 2019, the Company's effective tax rate for continuing operations was 52% and was higher than the statutory tax rate of 12.5% primarily due to a discrete tax charge related to newly enacted regulations related to U.S. Tax Reform, non-U.S. tax audit reserve adjustments and tax rate differentials, partially offset by a tax indemnification reserve release, the tax benefits of an asset held for sale impairment charge and continuing global tax planning initiatives. For the nine months ended June 30, 2019, the Company's effective tax rate for continuing operations was 38% and was higher than the statutory tax rate of 12.5% primarily due to valuation allowance adjustments as a result of tax law changes, a discrete tax charge related to newly enacted regulations related to U.S. Tax Reform, non-U.S. tax audit reserve adjustments and tax rate differentials, partially offset by a tax indemnification reserve release, the tax benefits of an asset held for sale impairment charge and continuing global tax planning initiatives.

Valuation Allowance

The Company reviews the realizability of its deferred tax assets on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or consolidated group recording the net deferred tax asset are considered, along with any other positive or negative evidence. Since future financial results may differ from previous estimates, periodic adjustments to the Company’s valuation allowances may be necessary.

In the first quarter of fiscal 2019, as a result of changes to U.S. tax law, the Company recorded a discrete tax charge of $76 million related to valuation allowances on certain U.S. deferred tax assets.

Uncertain Tax Positions

At September 30, 2019, the Company had gross tax effected unrecognized tax benefits of $2,451 million, of which $2,121 million, if recognized, would impact the effective tax rate. Total net accrued interest at September 30, 2019 was approximately $181 million (net of tax benefit). The interest and penalties accrued during the nine months ended June 30, 2020 were approximately $55 million (net of tax benefit). Interest and penalties accrued during the nine months ended June 30, 2019 were approximately $49 million (net of tax benefit). The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.

In the third quarter of fiscal 2020, tax audit resolutions resulted in a $22 million net benefit to income tax expense.

In the second quarter of fiscal 2020, tax audit resolutions resulted in a $22 million net benefit to income tax expense.

In the third quarter of fiscal 2019, the Company recorded a discrete charge of $199 million related to newly enacted regulations related to U.S. Tax Reform which impacted the Company's reserves for uncertain tax positions.

In the third quarter of fiscal 2019, the Company recorded a discrete charge of $27 million related to non-U.S. tax examinations.

In the U.S., fiscal years 2017 through 2018 are currently under exam by the Internal Revenue Service (“IRS”) for certain legal entities. Additionally, the Company is currently under exam in the following major non-U.S. jurisdictions for continuing operations:


Tax Jurisdiction						Tax Years Covered

Belgium						2015 - 2019
Germany						2007 - 2016
Taiwan						2017 - 2018
United Kingdom						2014 - 2015, 2017

It is reasonably possible that certain tax examinations and/or tax litigation will conclude within the next twelve months, which could have a material impact on tax expense.

Impacts of Tax Legislation

On March 27, 2020, in response to the COVID-19 pandemic, the “Coronavirus Aid, Relief and Economic Security Act” (“CARES”) was signed into law by the President of the United States. The CARES Act includes, among other things, U.S. corporate income tax provisions related to net operating loss carryback periods, alternative minimum tax credits, modifications to interest deduction limitations and technical corrections on tax depreciation methods for qualified improvement property. A majority of non-U.S. countries have also introduced various COVID-19 related corporate income tax relief provisions. The Company does not expect either the U.S. or non-U.S. corporate income tax provisions to have a material effect on its financial statements.

In the first quarter of fiscal 2020, the Company recorded a noncash discrete tax charge of $30 million due to the remeasurement of deferred tax assets and liabilities related to Switzerland and the canton of Schaffhausen. On September 28, 2018, the Swiss Parliament approved the Federal Act on Tax Reform and AHV Financing (“TRAF”), which was subsequently approved by the Swiss electorate on May 19, 2019. During the fourth quarter of fiscal 2019, the Swiss Federal Council enacted TRAF which became effective for the Company on January 1, 2020. The impacts of the federal enactment did not have a material impact to the Company’s financial statements. TRAF also provides for parameters which enable the Swiss cantons to adjust tax rates and establish new regulations for companies. As of September 30, 2019, the canton of Schaffhausen had not concluded its public referendum; however, the enactment did occur during the first quarter of fiscal 2020.

During the nine months ended June 30, 2020 and 2019, other tax legislation was adopted in various jurisdictions. These law changes did not have a material impact on the Company's consolidated financial statements.

Other Tax Matters

In the third quarter of fiscal 2020, the Company recorded net mark-to-market losses of $132 million. These losses generated a tax benefit of $34 million, which reflects the Company's current tax position in the impacted jurisdictions.

In the third quarter of fiscal 2020, the Company recorded $610 million of restructuring and impairment costs. Refer to Note 8, "Goodwill and Other Intangible Assets," and Note 9, “Significant Restructuring and Impairment Costs,” of the notes to consolidated financial statements for additional information. The restructuring costs generated a $28 million tax benefit, which reflects the Company’s current tax position in the impacted jurisdictions.

In the second quarter of fiscal 2020, the Company recorded $62 million of restructuring and impairment costs. Refer to Note 8, "Goodwill and Other Intangible Assets," and Note 9, “Significant Restructuring and Impairment Costs,” of the notes to consolidated financial statements for additional information. The restructuring costs generated a $4 million tax benefit, which reflects the Company’s current tax position in the impacted jurisdictions.

In the first quarter of fiscal 2020, the Company recorded $111 million of restructuring and impairment costs. Refer to Note 9, “Significant Restructuring and Impairment Costs,” of the notes to consolidated financial statements for additional information. The restructuring costs generated a $16 million tax benefit, which reflects the Company’s current tax position in the impacted jurisdictions.

In the third quarter of fiscal 2019, the Company recorded a $235 million impairment charge related to assets held for sale. Refer to Note 18, "Impairment of Long-Lived Assets," of the notes to consolidated financial statements for further information regarding the impairment charge. The impairment charge generated a $53 million tax benefit.

In the third quarter of fiscal 2019, the Company released a $226 million tax indemnification reserve. Refer to Note 20, "Guarantees," of the notes to consolidated financial statements for further information regarding the reserve release. The reserve release generated no income tax expense.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References + Details