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Income Taxes (Notes) | 12 Months Ended
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Sep. 30, 2017
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):
| Year Ended September 30,
| 2017 |  | 2016 |  | 2015
Tax expense at federal statutory rate | $ | 895 |  |  | $ | 371 |  |  | $ | 326 |
State income taxes, net of federal benefit | 23 |  |  | (6 | ) |  | (6 | )
Foreign income tax expense at different rates and foreign losses without tax benefits | (309 | ) |  | (122 | ) |  | (175 | )
U.S. tax on foreign income | (407 | ) |  | (194 | ) |  | 39 |
Reserve and valuation allowance adjustments | (164 | ) |  | — |  |  | (99 | )
U.S. credits and incentives | (3 | ) |  | (14 | ) |  | (7 | )
Impact of acquisitions and divestitures | 571 |  |  | 163 |  |  | — |
Restructuring and impairment costs | 65 |  |  | 28 |  |  | — |
Other | 34 |  |  | (29 | ) |  | (7 | )
Income tax provision | $ | 705 |  |  | $ | 197 |  |  | $ | 71 |
The U.S. federal statutory tax rate is being used as a comparison since the Company was a U.S. domiciled company in fiscal 2015 and 11 months of 2016 and due to the Company’s current legal entity structure. The effective rate is below the U.S. statutory rate for fiscal 2017 primarily due to the benefits of continuing global tax planning initiatives, non-U.S. tax rate differentials, tax audit closures, and a tax benefit due to changes in entity tax status, partially offset by the jurisdictional mix of significant restructuring and impairment costs, Tyco Merger transaction / integration costs and the establishment of a deferred tax liability on the outside basis difference of the Company's investment in certain subsidiaries related to the divestiture of the Scott Safety business. The effective rate is below the U.S. statutory rate for fiscal 2016 primarily due to the benefits of continuing global tax planning initiatives and foreign tax rate differentials, partially offset by the jurisdictional mix of restructuring and impairment costs, and the tax impacts of the Merger and integration related costs. The effective rate is below the U.S. statutory rate for fiscal 2015 primarily due to the benefits of continuing global tax planning initiatives, income in certain non-U.S. jurisdictions with a tax rate lower than the U.S. statutory tax rate and adjustments due to tax audit resolutions. Valuation Allowances The Company reviews the realizability of its deferred tax asset 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 the fourth quarter of fiscal 2017, the Company performed an analysis related to the realizability of its worldwide deferred tax assets. As a result, and after considering 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 in Canada, China and Mexico would not be able to be realized, and it was more likely than not that certain deferred tax assets in Germany would be realized. Therefore, the Company recorded $27 million of net valuation allowances as income tax expense in the three month period ended September 30, 2017. As a result of the Tyco Merger in the fourth quarter of fiscal 2016, the Company recorded as part of the acquired liabilities of Tyco $2.4 billion of valuation allowances. Also in the fourth quarter of fiscal 2016, the Company performed an analysis related to the realizability of its worldwide deferred tax assets. As a result, and after considering tax planning initiatives and other positive and negative evidence, the Company determined that no other material changes were needed to its valuation allowances. Therefore, there was no impact to income tax expense due to valuation allowance changes in the three month period or year ended September 30, 2016. In the fourth quarter of fiscal 2015, the Company performed an analysis related to the realizability of its worldwide deferred tax assets. As a result, and after considering 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 Spain, Germany, and the United Kingdom would not be realized, and it is more likely than not that certain deferred tax assets of Poland and Germany will be realized. The impact of the net valuation allowance provision offset the benefit of valuation allowance releases and, as such, there was no net impact to income tax expense in the three month period ended September 30, 2015. Uncertain Tax Positions The Company is subject to income taxes in the U.S. and numerous foreign 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. At September 30, 2017, the Company had gross tax effected unrecognized tax benefits for continuing operations of $2,173 million of which $2,047 million, if recognized, would impact the effective tax rate. Total net accrued interest at September 30, 2017 was approximately $99 million (net of tax benefit). At September 30, 2016, the Company had gross tax effected unrecognized tax benefits for continuing operations of $1,706 million of which $1,604 million, if recognized, would impact the effective tax rate. Total net accrued interest at September 30, 2016 was approximately $84 million (net of tax benefit). At September 30, 2015, the Company had gross tax effected unrecognized tax benefits for continuing operations of $1,052 million of which $997 million, if recognized, would impact the effective tax rate. Total net accrued interest at September 30, 2015 was approximately $33 million (net of tax benefit). A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
| Year Ended September 30,
| 2017 |  | 2016 |  | 2015
Beginning balance, October 1 | $ | 1,706 |  |  | $ | 1,052 |  |  | $ | 1,493 |
Additions for tax positions related to the current year | 613 |  |  | 442 |  |  | 329 |
Additions for tax positions of prior years | 116 |  |  | 15 |  |  | 23 |
Reductions for tax positions of prior years | (44 | ) |  | (66 | ) |  | (111 | )
Settlements with taxing authorities | (95 | ) |  | (104 | ) |  | (541 | )
Statute closings and audit resolutions | (264 | ) |  | (30 | ) |  | (141 | )
Acquisition of business | 141 |  |  | 397 |  |  | — |
Ending balance, September 30 | $ | 2,173 |  |  | $ | 1,706 |  |  | $ | 1,052 |
During fiscal 2017, the Company settled a significant number of tax examinations impacting fiscal years 2006 to fiscal 2014. In the fourth quarter of fiscal 2017, income tax audit resolutions resulted in a net $191 million benefit to income tax expense. During fiscal 2015, the Company settled a significant number of tax examinations in Germany, Mexico and the U.S., impacting fiscal years 1998 to fiscal 2012. The settlement of unrecognized tax benefits included cash payments for approximately $440 million and the loss of various tax attributes. The reduction for tax positions of prior years is substantially related to foreign exchange rates. In the fourth quarter of fiscal 2015, income tax audit resolutions resulted in a net $99 million benefit to income tax expense. In the U.S., fiscal years 2010 through 2014 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 - 2016
Brazil |  | 2011 - 2012
Canada |  | 2013 - 2014
China |  | 2008 - 2016
France |  | 2010 - 2015
Germany |  | 2007 - 2015
Japan |  | 2016
Spain |  | 2010 - 2014
Switzerland |  | 2011 - 2014
United Kingdom |  | 2011 - 2014
It is reasonably possible that certain tax examinations and /or tax litigation will conclude within the next twelve months, which could be up to a $25 million impact to tax expense. Other Tax Matters During fiscal 2017, the Company recorded $428 million of transaction and integration costs which generated a $69 million tax benefit. During fiscal 2017, the Company recorded a discrete non-cash tax charge of $490 million related to establishment of a deferred tax liability on the outside basis difference of the Company's investment in certain subsidiaries of the Scott Safety business. This business is reported as net assets held for sale given the announced sale to 3M Company. Refer to Note 3, "Acquisitions and Divestitures," and Note 4, "Discontinued Operations," of the notes to consolidated financial statements for additional information. In the fourth quarter of fiscal 2017, the Company recorded a tax charge of $53 million due to a change in the deferred tax liability related to the outside basis of certain nonconsolidated subsidiaries. In the first quarter of fiscal 2017, the Company recorded a discrete tax benefit of $101 million due to changes in entity tax status. During fiscal 2017, 2016 and 2015, the Company incurred significant charges for restructuring and impairment costs. Refer to Note 16, "Significant Restructuring and Impairment Costs," of the notes to consolidated financial statements for additional information. A substantial portion of these charges do not generate a tax benefit due to the Company's current tax position in these jurisdictions and the underlying tax basis in the impaired assets, resulting in $65 million and $28 million incremental tax expense in fiscal 2017 and 2016, respectively. During the fourth quarter of fiscal 2016, the Company completed its Merger with Tyco. As a result of that transaction, the Company incurred incremental tax expense of $137 million. In preparation for the spin-off of the Automotive Experience business in the first quarter of fiscal 2017, the Company incurred incremental tax expense for continuing operations of $26 million in fiscal 2016. As a result of the Tyco Merger in the fourth quarter of fiscal 2016, the Company recorded as part of the acquired liabilities of Tyco $290 million of post sale contingent tax indemnification liabilities which is generally recorded within other noncurrent liabilities in the consolidated statements of financial position. The liabilities are recorded at fair value and relate to certain tax related matters borne by the buyer of previously divested subsidiaries of Tyco which Tyco has indemnified certain parties and the amounts are probable of being paid. Of the $290 million recorded as of September 30, 2017 and 2016, $255 million is related to prior divested businesses and the remainder relates to Tyco’s tax sharing agreements from its 2007 and 2012 spin-off transactions. These are certain guarantees or indemnifications extended among Tyco, Medtronic, TE Connectivity, ADT and Pentair in accordance with the terms of the 2007 and 2012 separation and tax sharing agreements. In addition, the Company has recorded $11 million of tax indemnification liabilities as of September 30, 2017 related to other divestitures. Impacts of Tax Legislation and Change in Statutory Tax Rates On October 13, 2016, the U.S. Treasury and the IRS released final and temporary Section 385 regulations. These regulations address whether certain instruments between related parties are treated as debt or equity. The Company does not expect that the regulations will have a material impact on its consolidated financial statements. The "look-through rule," under subpart F of the U.S. Internal Revenue Code, expired for the Company on September 30, 2015. The "look-through rule" had provided an exception to the U.S. taxation of certain income generated by non-U.S. subsidiaries. The rule was extended in December 2015 retroactive to the beginning of the Company’s 2016 fiscal year. The retroactive extension was signed into legislation and was made permanent through the Company's 2020 fiscal year. In the second quarter of fiscal 2015, tax legislation was adopted in Japan which reduced its statutory income tax rate. As a result of the law change, the Company recorded income tax expense of $17 million in the second quarter of fiscal 2015. During the fiscal years ended 2017, 2016 and 2015, 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 Components of the provision for income taxes on continuing operations were as follows (in millions):
| Year Ended September 30,
| 2017 |  | 2016 |  | 2015
Current |  |  |  |  |
Federal | $ | (225 | ) |  | $ | 169 |  |  | $ | (688 | )
State | (6 | ) |  | 5 |  |  | (33 | )
Foreign | 373 |  |  | 788 |  |  | 550 |
| 142 |  |  | 962 |  |  | (171 | )
Deferred |  |  |  |  |
Federal | 593 |  |  | (321 | ) |  | 410 |
State | 41 |  |  | (15 | ) |  | (2 | )
Foreign | (71 | ) |  | (429 | ) |  | (166 | )
| 563 |  |  | (765 | ) |  | 242 |
Income tax provision | $ | 705 |  |  | $ | 197 |  |  | $ | 71 |
Consolidated U.S. income from continuing operations before income taxes and noncontrolling interests for the fiscal years ended September 30, 2017, 2016 and 2015 was income of $868 million, $943 million and $418 million, respectively. Consolidated foreign income from continuing operations before income taxes and noncontrolling interests for the fiscal years ended September 30, 2017, 2016 and 2015 was income of $1,690 million, $119 million and $513 million, respectively. Income taxes paid for the fiscal years ended September 30, 2017, 2016 and 2015 were $1,756 million, $1,388 million and $1,163 million, respectively. At September 30, 2017 and 2016, the Company recorded within the consolidated statements of financial position in other current liabilities approximately $625 million and $1,505 million, respectively, of accrued income tax liabilities for continuing operations. The Company has not provided U.S. or non-U.S. income taxes on approximately $16 billion of outside basis differences of consolidated subsidiaries of Johnson Controls International plc. 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. In fiscal 2017, the Company did provide U.S. income tax expense related to the establishment of a deferred tax liability on the outside basis difference of the Company’s investment in certain subsidiaries of the Scott Safety business as a result of the planned divestiture. Deferred taxes were classified in the consolidated statements of financial position as follows (in millions):
| September 30,
| 2017 |  | 2016
Other noncurrent assets | 2,360 |  |  | 2,467 |
Other noncurrent liabilities | (1,733 | ) |  | (1,542 | )
Net deferred tax asset | $ | 627 |  |  | $ | 925 |
Temporary differences and carryforwards which gave rise to deferred tax assets and liabilities included (in millions):
| September 30,
| 2017 |  | 2016
Deferred tax assets |  |  |
Accrued expenses and reserves | $ | 891 |  |  | $ | 1,175 |
Employee and retiree benefits | 13 |  |  | 438 |
Net operating loss and other credit carryforwards | 5,490 |  |  | 4,483 |
Research and development | 188 |  |  | 85 |
Joint ventures and partnerships | — |  |  | 49 |
Other | 26 |  |  | 19 |
| 6,608 |  |  | 6,249 |
Valuation allowances | (3,838 | ) |  | (3,400 | )
| 2,770 |  |  | 2,849 |
Deferred tax liabilities |  |  |
Property, plant and equipment | 247 |  |  | 87 |
Subsidiaries, joint ventures and partnerships | 789 |  |  | — |
Intangible assets | 1,107 |  |  | 1,837 |
| 2,143 |  |  | 1,924 |
Net deferred tax asset | $ | 627 |  |  | $ | 925 |
At September 30, 2017, the Company had available net operating loss carryforwards of approximately $16.6 billion, of which $6.5 billion will expire at various dates between 2018 and 2037, and the remainder has an indefinite carryforward period. The Company had available U.S. foreign tax credit carryforwards at September 30, 2017 of $468 million which will expire at various dates between 2020 and 2024 or carried back to fiscal period 2016. The valuation allowance, generally, is for loss carryforwards for which realization is uncertain because it is unlikely that the losses will be realized given the lack of sustained profitability and/or limited carryforward periods in certain countries. As of September 30, 2017, deferred tax assets of approximately $180 million relate to certain operating loss carryforwards resulting from the exercise of employee stock options and restricted stock vestings, the tax benefit of which, when recognized, will be accounted for as a credit to additional paid-in capital rather than a reduction of income tax provision. Such amount has been presented within the tax loss and carryforwards line in the table above.

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- 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 Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
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