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INCOME TAXES | 12 Months Ended
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Aug. 31, 2022
Income Tax Disclosure [Abstract] |
INCOME TAXES | Income Taxes
| Fiscal
| 2022 |  | 2021 |  | 2020
Current taxes |  |  |  |  |
U.S. federal | $ | 298,685 |  |  | $ | 218,064 |  |  | $ | 99,280 |
U.S. state and local | 152,862 |  |  | 95,662 |  |  | 26,425 |
Non-U.S. | 1,968,954 |  |  | 1,395,915 |  |  | 1,292,362 |
Total current tax expense | 2,420,501 |  |  | 1,709,641 |  |  | 1,418,067 |
Deferred taxes |  |  |  |  |
U.S. federal | (202,318) |  |  | 7,767 |  |  | 21,532 |
U.S. state and local | (48,597) |  |  | (5,400) |  |  | 8,525 |
Non-U.S. | 37,621 |  |  | 58,563 |  |  | 140,894 |
Total deferred tax (benefit) expense | (213,294) |  |  | 60,930 |  |  | 170,951 |
Total | $ | 2,207,207 |  |  | $ | 1,770,571 |  |  | $ | 1,589,018 |
The components of Income before income taxes are as follows:
| Fiscal
| 2022 |  | 2021 |  | 2020
U.S. sources | $ | 1,644,380 |  |  | $ | 1,597,820 |  |  | $ | 1,352,968 |
Non-U.S. sources | 7,551,787 |  |  | 6,163,296 |  |  | 5,421,363 |
Total | $ | 9,196,167 |  |  | $ | 7,761,116 |  |  | $ | 6,774,331 |
The reconciliation of the U.S. federal statutory income tax rate to our effective income tax rate is as follows:
| Fiscal
| 2022 |  | 2021 |  | 2020 (2)
U.S. federal statutory income tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
U.S. state and local taxes, net | 1.1 |  |  | 1.2 |  |  | 1.2 |
Non-U.S. operations taxed at other rates | 0.8 |  |  | 1.1 |  |  | 1.2 |
Final determinations (1) | (0.9) |  |  | (1.7) |  |  | (1.9) |
Other net activity in unrecognized tax benefits | 3.0 |  |  | 2.8 |  |  | 2.4 |
Excess tax benefits from share based payments | (3.0) |  |  | (2.1) |  |  | (1.9) |
Other, net | 2.0 |  |  | 0.5 |  |  | 1.5 |
Effective income tax rate | 24.0 | % |  | 22.8 | % |  | 23.5 | %
(1)Final determinations include final agreements with tax authorities and expirations of statutes of limitations. (2)Prior period amounts have been reclassified to conform with the current period presentation. As of August 31, 2022, we had not recognized a deferred tax liability on approximately $2,400,000 of undistributed earnings for certain foreign subsidiaries, because these earnings are intended to be indefinitely reinvested. If such earnings were distributed, some countries may impose additional taxes. The unrecognized deferred tax liability (the amount payable if distributed) is approximately $120,000. Portions of our operations are subject to reduced tax rates or are free of tax under various tax holidays which expire in fiscal 2024. The income tax benefits attributable to the tax status of these subsidiaries were estimated to be approximately $29,000, $37,000 and $38,000 in fiscal 2022, 2021 and 2020, respectively. The revaluation of deferred tax assets and liabilities due to enacted changes in tax laws and tax rates did not have a material impact on our effective tax rate in fiscal 2022, 2021, or 2020. The components of our deferred tax assets and liabilities included the following:
| August 31, 2022 |  | August 31, 2021 (1)
Deferred tax assets |  |  |
Pensions | $ | 501,475 |  |  | $ | 474,934 |
Compensation and benefits | 930,284 |  |  | 726,430 |
Share-based compensation | 436,740 |  |  | 355,157 |
Tax credit carryforwards | 940,640 |  |  | 915,382 |
Net operating loss carryforwards | 180,610 |  |  | 196,611 |
Deferred amortization deductions | 852,513 |  |  | 857,441 |
Indirect effects of unrecognized tax benefits | 356,841 |  |  | 285,768 |
Licenses and other intangibles | 1,322,464 |  |  | 1,533,152 |
Leases | 759,399 |  |  | 704,200 |
Other | 477,143 |  |  | 426,565 |
Total deferred tax assets | 6,758,109 |  |  | 6,475,640 |
Valuation allowance | (1,056,022) |  |  | (1,001,245) |
Deferred tax assets, net of valuation allowance | 5,702,087 |  |  | 5,474,395 |
Deferred tax liabilities |  |  |
Pensions | (146,553) |  |  | (28,449) |
Revenue recognition | (106,580) |  |  | (67,455) |
Investments in subsidiaries | (162,873) |  |  | (142,635) |
Intangibles | (581,105) |  |  | (480,588) |
Leases | (687,428) |  |  | (648,419) |
Property and equipment | (66,977) |  |  | (92,271) |
Other | (267,955) |  |  | (251,084) |
Total deferred tax liabilities | (2,019,471) |  |  | (1,710,901) |
Net deferred tax assets | $ | 3,682,616 |  |  | $ | 3,763,494 |
(1)Prior period amounts have been reclassified to conform with the current period presentation. We recorded valuation allowances of $1,056,022 and $1,001,245 as of August 31, 2022 and 2021, respectively, against deferred tax assets principally associated with certain tax credit and tax net operating loss carryforwards, as we believe it is more likely than not that these assets will not be realized. For all other deferred tax assets, we believe it is more likely than not that the results of future operations will generate sufficient taxable income to realize these deferred tax assets. During fiscal 2022 and 2021, we recorded net increases of $54,777 and $243,446 in the valuation allowance, respectively, primarily related to valuation allowances on certain tax credit carryforwards, as we believe it is more likely than not that these assets will not be realized. We had tax credit carryforwards as of August 31, 2022 of $940,640, of which $12,119 will expire between 2023 and 2032, $1,027 will expire between 2033 and 2042, and $927,494 has an indefinite carryforward period. We had net operating loss carryforwards as of August 31, 2022 of $857,615. Of this amount, $174,669 expires between 2023 and 2032, $80,604 expires between 2033 and 2042, and $602,342 has an indefinite carryforward period. As of August 31, 2022, we had $1,469,336 of unrecognized tax benefits, of which $1,083,065, if recognized, would favorably affect our effective tax rate. As of August 31, 2021, we had $1,344,460 of unrecognized tax benefits, of which $1,028,090, if recognized, would favorably affect our effective tax rate. The remaining unrecognized tax benefits as of August 31, 2022 and 2021 of $386,271 and $316,370, respectively, represent items recorded as offsetting tax benefits associated with the correlative effects of potential transfer pricing adjustments, state income taxes and timing adjustments. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
| Fiscal
| 2022 |  | 2021
Balance, beginning of year | $ | 1,344,460 |  |  | $ | 1,238,945 |
Additions for tax positions related to the current year | 356,089 |  |  | 187,741 |
Additions for tax positions related to prior years | 29,060 |  |  | 115,518 |
Reductions for tax positions related to prior years | (69,023) |  |  | (133,349) |
Statute of limitations expirations | (62,393) |  |  | (62,614) |
Settlements with tax authorities | (2,109) |  |  | (3,374) |
Foreign currency translation | (126,748) |  |  | 1,593 |
Balance, end of year | $ | 1,469,336 |  |  | $ | 1,344,460 |
For the years ended August 31, 2022 and 2021, some of the additions for tax positions related to prior years are for items that had no net impact to the consolidated financial statements. We recognize interest and penalties related to unrecognized tax benefits in our Income tax expense. During fiscal 2022, 2021 and 2020, we recognized expense of $25,369, $35,285 and $21,140 in interest and penalties, respectively. Accrued interest and penalties related to unrecognized tax benefits of $177,610 ($159,814, net of tax benefits) and $166,846 ($151,184, net of tax benefits) were reflected on our Consolidated Balance Sheets as of August 31, 2022 and 2021, respectively. As a global company, we file tax returns in multiple tax jurisdictions including the U.S. and Ireland. We have participated in the U.S. Internal Revenue Service (“IRS”) Compliance Assurance Process (“CAP”) program since fiscal 2016. CAP tax years are examined by the IRS on a contemporaneous basis so that most issues are resolved prior to filing the tax return. The years from fiscal 2021 forward remain open for examination by the IRS. The years from fiscal 2018 forward remain open for examination by the Irish tax authorities. We are currently under audit in numerous state and other non-U.S. tax jurisdictions. However, with limited exceptions, we are no longer subject to examination by those taxing authorities for years before 2014. Although the outcome of tax audits is always uncertain and could result in significant cash tax payments, we do not believe the outcome of these audits will have a material adverse effect on our consolidated financial position or results of operations. We believe that it is reasonably possible that our unrecognized tax benefits could decrease by approximately $294,000 or increase by approximately $371,000 in the next 12 months as a result of settlements, lapses of statutes of limitations, tax audit activity and other adjustments. The majority of these amounts relate to transfer pricing matters in both U.S. and non-U.S. tax jurisdictions.

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