Income Taxes

12 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The more significant components of the Company’s income tax provision from continuing operations are as follows (in millions):

	2022		2021		2020
Tax expense at Ireland statutory rate	$	214	$	327	$	113
U.S. state income tax, net of federal benefit	(23)		34		8
Income subject to the U.S. federal tax rate	(95)		3		(92)
Income subject to rates different than the statutory rate	125		30		99
Reserve and valuation allowance adjustments	(274)		66		(70)
Intercompany intellectual property transfer	—		417		—
Restructuring and impairment costs	40		(9)		50
Income tax provision (benefit)	$	(13)	$	868	$	108

The statutory tax rate in Ireland of 12.5% is being used as a comparison since the Company is domiciled in Ireland.

For fiscal 2022, the effective tax rate for continuing operations was (1)% and was lower than the statutory tax rate primarily due to tax reserve adjustments as the result of expired statute of limitations for certain tax years and the benefits of continuing global tax planning initiatives, partially offset by the income tax effects of impairment and restructuring charges, valuation allowance adjustments, the establishment of a deferred tax liability on the outside basis difference of the Company's investment in certain subsidiaries as a result of the planned divestitures and tax rate differentials.

For fiscal 2021, the effective tax rate for continuing operations was 33% and was higher than the statutory tax rate primarily due to the tax impacts of an intercompany transfer of certain of the Company’s intellectual property rights, valuation allowance adjustments, the income tax effects of mark-to-market adjustments and tax rate differentials, partially offset by the benefits of continuing global tax planning initiatives.

For fiscal 2020, the effective tax rate for continuing operations was 12% and was lower than the statutory tax rate primarily due to tax audit reserve adjustments, the income tax effects of mark-to-market adjustments, valuation allowance adjustments and the benefits of continuing global tax planning initiatives, partially offset by 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.

Valuation Allowances

The Company reviews the realizability of its deferred tax assets and related valuation allowances 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 fiscal 2022, due to changes in forecasted taxable income, the Company determined that it was more likely than not that certain deferred tax assets of Japan would not be realized. The valuation allowance adjustment resulted in a tax charge of $27 million.

In fiscal 2021, as a result of an intercompany transfer of certain of the Company’s intellectual property rights, the Company determined that it is more likely than not that certain deferred tax assets of Switzerland would be realized, and it was more likely than not that certain deferred tax assets of Canada would not be realized. The valuation allowance adjustments resulted in a $39 million net benefit to income tax expense. Due to changes in forecasted taxable income, the Company also recorded a

discrete tax charge of $105 million related to valuation allowances on certain Mexico deferred tax assets now considered unrealizable.

In fiscal 2020, the Company performed an analysis related to the realizability of its worldwide deferred tax assets. As a result, and after considering feasible tax planning initiatives and other positive and negative evidence, the Company determined that it was more likely than not that certain deferred tax assets primarily within the U.S. would not be realized, and it is more likely than not that certain deferred tax assets of Canada would be realized. The valuation allowance adjustments resulted in a $26 million net benefit to income tax expense.

Uncertain Tax Positions

The Company is subject to income taxes in the U.S. and numerous non-U.S. jurisdictions. Judgment is required in determining its worldwide provision for income taxes and recording the related assets and liabilities. In the ordinary course of the Company’s business, there are many transactions and calculations where the ultimate tax determination is uncertain. The Company is regularly under audit by tax authorities.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):

	2022		2021		2020
Beginning balance, October 1	$	2,726	$	2,528	$	2,451
Additions for tax positions related to the current year	169		240		128
Additions for tax positions of prior years	31		33		129
Reductions for tax positions of prior years	(48)		(6)		(27)
Settlements with taxing authorities	(7)		(24)		(54)
Statute closings and audit resolutions	(334)		(45)		(99)
Ending balance, September 30	$	2,537	$	2,726	$	2,528

The following table summarizes gross tax effected unrecognized tax benefits that, if recognized, would impact the effective tax rate and the related accrued interest, net of tax benefit (in millions):

	September 30,
	2022		2021		2020
Gross tax effected unrecognized tax benefits	$	1,973	$	2,268	$	2,132
Net accrued interest	284		252		205

In fiscal 2022, the statute of limitations for certain tax years expired, which resulted in a $301 million benefit to income tax expense.

During fiscal 2020, tax audit resolutions resulted in a $44 million net benefit to income tax expense.

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 - 2021
Germany	2007 - 2018
Luxembourg	2017 - 2018
Mexico	2015 - 2017
United Kingdom	2014 - 2015, 2017 - 2018; 2020

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. Based upon the circumstances surrounding these examinations, the impact is not currently quantifiable.

Other Tax Matters

During fiscal 2022, 2021 and 2020, the Company incurred charges for restructuring and impairment costs of $721 million, $242 million and $783 million, which generated tax benefits of $50 million, $39 million and $48 million, respectively.

In fiscal 2021, the Company completed an intercompany transfer of certain of the Company’s intellectual property rights which resulted in a net tax charge of $417 million.

Impacts of Tax Legislation and Change in Statutory Tax Rates

On August 16, 2022, the U.S. enacted the Inflation Reduction Act (“IRA”) which, among other things, creates a new book minimum tax of at least 15% of consolidated GAAP pre-tax income for corporations with average book income in excess of $1 billion. The book minimum tax is first applicable in fiscal year 2024. The Company does not expect this provision to have a material impact on its effective tax rate.

In 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 fiscal years ended 2022, 2021 and 2020, other tax legislation was adopted in various jurisdictions. These law changes did not have a material impact on the Company's consolidated financial statements.

Continuing Operations

Selected income tax data related to continuing operations were as follows (in millions):

	2022		2021		2020
Components of income (loss) from continuing operations before income taxes:
U.S.	$	67	$	543	$	(385)
Non-U.S.	1,643		2,071		1,288
Income from continuing operations before income taxes	$	1,710	$	2,614	$	903
Components of the provision (benefit) for income taxes:
Current
U.S. federal	$	(219)	$	459	$	309
U.S. state	53		108		72
Non-U.S.	294		265		264
	128		832		645
Deferred
U.S. federal	(175)		(7)		(382)
U.S. state	(69)		46		(43)
Non-U.S.	103		(3)		(112)
	(141)		36		(537)
Income tax provision (benefit)	$	(13)	$	868	$	108
Income taxes paid (refunded)	$	568	$	504	$	(386)

At September 30, 2022 and 2021, the Company recorded within the consolidated statements of financial position in other current assets approximately $253 million and $120 million, respectively, of income tax assets. At September 30, 2022 and 2021, the Company recorded within the consolidated statements of financial position in other current liabilities approximately $143 million and $201 million, respectively, of accrued income tax liabilities.

The Company has not provided U.S. or non-U.S. income taxes on approximately $23.6 billion of outside basis differences of consolidated subsidiaries of Johnson Controls International plc. The Company is indefinitely reinvested in these basis differences. The reduction of the outside basis differences via the sale or liquidation of these subsidiaries and/or distributions could create taxable income. The Company's intent is to reduce the outside basis differences only when it would be tax efficient. Given the numerous ways in which the basis differences may be reduced, it is not practicable to estimate the amount of unrecognized withholding taxes and deferred tax liability on the outside basis differences.

Deferred taxes were classified in the consolidated statements of financial position as follows (in millions):

	September 30,
	2022		2021
Other noncurrent assets	$	944	$	755
Other noncurrent liabilities	(500)		(443)
Net deferred tax asset	$	444	$	312

Temporary differences and carryforwards which gave rise to deferred tax assets and liabilities included (in millions):

	September 30,
	2022		2021
Deferred tax assets
Accrued expenses and reserves	$	376	$	407
Employee and retiree benefits	77		148
Property, plant and equipment	444		369
Net operating loss and other credit carryforwards	6,472		6,293
Research and development	52		42
Operating lease liabilities	309		334
Other, net	58		28
	7,788		7,621
Valuation allowances	(5,967)		(5,853)
	1,821		1,768
Deferred tax liabilities
Subsidiaries, joint ventures and partnerships	338		346
Intangible assets	730		776
Operating lease right-of-use assets	309		334
	1,377		1,456
Net deferred tax asset	$	444	$	312

At September 30, 2022, the Company had available net operating loss carryforwards of approximately $24.3 billion, of which $14.0 billion will expire at various dates between 2023 and 2042, and the remainder has an indefinite carryforward period. The Company had available U.S. foreign tax credit carryforwards at September 30, 2022 of $35 million which will expire in 2029. The valuation allowance, generally, is for loss and credit carryforwards for which realization is uncertain because it is unlikely that the losses and/or credits will be realized given the lack of sustained profitability and/or limited carryforward periods in certain countries.