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Income Taxes | 12 Months Ended
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Sep. 30, 2023
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):
| 2023 |  | 2022 |  | 2021
Tax expense at Ireland statutory rate of 12.5% | $ | 214 |  |  | $ | 214 |  |  | $ | 327 |
U.S. state income tax, net of federal benefit | 39 |  |  | (23) |  |  | 34 |
Income subject to the U.S. federal tax rate | 56 |  |  | (95) |  |  | 3 |
Income subject to rates different than the statutory rate | 92 |  |  | 125 |  |  | 30 |
Reserve and valuation allowance adjustments | (559) |  |  | (274) |  |  | 66 |
Intellectual property transactions and adjustments | (176) |  |  | — |  |  | 417 |
Restructuring and impairment costs | 11 |  |  | 40 |  |  | (9) |
Income tax provision (benefit) | $ | (323) |  |  | $ | (13) |  |  | $ | 868 |
Effective tax rate | (19) | % |  | (1)% |  | 33%
For fiscal 2023, the effective tax rate for continuing operations was (19)% and was lower than the statutory tax rate primarily due to the favorable tax impacts of intellectual property tax adjustments, tax reserve adjustments as the result of tax audit resolutions and remeasurements, valuation allowance adjustments and the benefits of continuing global tax planning initiatives, partially offset by the unfavorable impact of impairment and restructuring charges. For fiscal 2022, the effective tax rate for continuing operations was (1)% and was lower than the statutory tax rate primarily due to favorable impact of 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 unfavorable impact of impairment and restructuring charges, valuation allowance adjustments, and 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 unfavorable impact of 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. 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 2023, due to changes in forecasted taxable income, the Company determined that it was more likely than not that certain deferred tax assets of Canada, Mexico, and Spain would be realized. The valuation allowance adjustment resulted in a tax benefit of $121 million. 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 was more likely than not that certain deferred tax assets of Switzerland would be realized and 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 which were considered unrealizable. The following table summarizes changes in the valuation allowance (in millions):
| Year Ended September 30,
| 2023 |  | 2022 |  | 2021
Balance at beginning of period | $ | 5,973 |  |  | $ | 5,853 |  |  | $ | 5,518 |
Allowance provision for new operating and other loss carryforwards | 573 |  |  | 325 |  |  | 505 |
Allowance benefits | (168) |  |  | (205) |  |  | (170) |
Balance at end of period | $ | 6,378 |  |  | $ | 5,973 |  |  | $ | 5,853 |
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):
| 2023 |  | 2022 |  | 2021
Beginning balance, October 1 | $ | 2,537 |  |  | $ | 2,726 |  |  | $ | 2,528 |
Additions for tax positions related to the current year | 72 |  |  | 169 |  |  | 240 |
Additions for tax positions of prior years | 96 |  |  | 31 |  |  | 33 |
Reductions for tax positions of prior years | (27) |  |  | (48) |  |  | (6) |
Settlements with taxing authorities | (6) |  |  | (7) |  |  | (24) |
Statute closings and audit resolutions | (446) |  |  | (334) |  |  | (45) |
Ending balance, September 30 | $ | 2,226 |  |  | $ | 2,537 |  |  | $ | 2,726 |
The following table summarizes 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,
| 2023 |  | 2022 |  | 2021
Tax effected unrecognized tax benefits that, if recognized, would affect the effective tax rate | $ | 1,581 |  |  | $ | 1,973 |  |  | $ | 2,268 |
Net accrued interest | 335 |  |  | 284 |  |  | 252 |
In fiscal 2023, as the result of tax audit resolutions, statute expirations, and remeasurements of ongoing controversy matters in various jurisdictions, the Company adjusted its reserve for uncertain tax positions which resulted in a $438 million net benefit to income tax expense. In fiscal 2022, the statute of limitations for certain tax years expired, which resulted in a $301 million benefit to income tax expense. In the U.S., fiscal years 2017 through 2018 are currently under appeal 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 - 2022
Germany |  | 2007 - 2021
Luxembourg |  | 2017 - 2018
Mexico |  | 2015 - 2018
United Kingdom |  | 2014 - 2015; 2018; 2020 - 2021
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 2023, 2022 and 2021, the Company incurred charges for restructuring and impairment costs of $1,064 million, $721 million and $242 million, which generated tax benefits of $122 million, $50 million and $39 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 September 11, 2023, the Schaffhausen parliament approved a partial revision of the cantonal act on direct taxation: Immediate Minimum Taxation Measure (“IMTM”). The IMTM increases Switzerland’s combined statutory income tax rate to approximately 15%. On November 19, 2023, IMTM was approved in a public referendum in the canton of Schaffhausen, was published in the cantonal official gazette on December 8,2023, and is effective starting January 1, 2024. The Company is still evaluating the impact on its deferred tax assets in the canton of Schaffhausen, however the revaluation of these assets could have a noncash impact of less than $100 million to its consolidated financial statements. 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. During the fiscal years ended 2023, 2022 and 2021, other tax legislation was adopted in various jurisdictions. These law changes did not have a material impact on the Company's consolidated financial statements. Selected Income Tax Data Selected income tax data related to continuing operations were as follows (in millions):
| 2023 |  | 2022 |  | 2021
Components of income (loss) from continuing operations before income taxes: |  |  |  |  |
U.S. | $ | (130) |  |  | $ | 67 |  |  | $ | 543 |
Non-U.S. | 1,840 |  |  | 1,643 |  |  | 2,071 |
Income from continuing operations before income taxes | $ | 1,710 |  |  | $ | 1,710 |  |  | $ | 2,614 |
Components of the provision (benefit) for income taxes: |  |  |  |  |
Current |  |  |  |  |
U.S. federal | $ | (165) |  |  | $ | (219) |  |  | $ | 459 |
U.S. state | 105 |  |  | 53 |  |  | 108 |
Non-U.S. | 413 |  |  | 294 |  |  | 265 |
| 353 |  |  | 128 |  |  | 832 |
Deferred |  |  |  |  |
U.S. federal | (267) |  |  | (175) |  |  | (7) |
U.S. state | (25) |  |  | (69) |  |  | 46 |
Non-U.S. | (384) |  |  | 103 |  |  | (3) |
| (676) |  |  | (141) |  |  | 36 |
Income tax provision (benefit) | $ | (323) |  |  | $ | (13) |  |  | $ | 868 |
Income taxes paid | $ | 430 |  |  | $ | 568 |  |  | $ | 504 |
At September 30, 2023 and 2022, the Company recorded within the consolidated statements of financial position in other current assets approximately $65 million and $253 million, respectively, of income tax assets. At September 30, 2023 and 2022, the Company recorded within the consolidated statements of financial position in other current liabilities approximately $249 million and $143 million, respectively, of accrued income tax liabilities. The Company has not provided U.S. or non-U.S. income taxes on approximately $24.4 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,
| 2023 |  | 2022
Other noncurrent assets | $ | 1,499 |  |  | $ | 954 |
Other noncurrent liabilities | (411) |  |  | (503) |
Net deferred tax asset | $ | 1,088 |  |  | $ | 451 |
Temporary differences and carryforwards which gave rise to deferred tax assets and liabilities included (in millions):
| September 30,
| 2023 |  | 2022
Deferred tax assets |  |  |
Accrued expenses and reserves | $ | 507 |  |  | $ | 376 |
Employee and retiree benefits | 71 |  |  | 78 |
Property, plant and equipment | 629 |  |  | 444 |
Net operating loss and other credit carryforwards | 6,748 |  |  | 6,488 |
Research and development | 171 |  |  | 52 |
Operating lease liabilities | 348 |  |  | 309 |
Other, net | 38 |  |  | 58 |
| 8,512 |  |  | 7,805 |
Valuation allowances | (6,378) |  |  | (5,973) |
| 2,134 |  |  | 1,832 |
Deferred tax liabilities |  |  |
Subsidiaries, joint ventures and partnerships | 446 |  |  | 338 |
Intangible assets | 252 |  |  | 734 |
Operating lease right-of-use assets | 348 |  |  | 309 |
| 1,046 |  |  | 1,381 |
Net deferred tax asset | $ | 1,088 |  |  | $ | 451 |
At September 30, 2023, the Company had available net operating loss carryforwards of approximately $24.4 billion, of which $14.1 billion will expire at various dates between 2024 and 2043, and the remainder has an indefinite carryforward period. The Company had available U.S. foreign tax credit carryforwards at September 30, 2023 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.

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