XML 46 R26.htm IDEA: XBRL DOCUMENT v3.23.3
Income Taxes
 12 Months Ended
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):
 202320222021
Tax expense at Ireland statutory rate of 12.5%
$214 $214 $327 
U.S. state income tax, net of federal benefit39 (23)34 
Income subject to the U.S. federal tax rate
56 (95)3 
Income subject to rates different than the statutory rate92 125 30 
Reserve and valuation allowance adjustments(559)(274)66 
Intellectual property transactions and adjustments(176)— 417 
Restructuring and impairment costs11 40 (9)
Income tax provision (benefit)$(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,
202320222021
Balance at beginning of period$5,973 $5,853 $5,518 
Allowance provision for new operating and other loss carryforwards573 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):
202320222021
Beginning balance, October 1$2,537 $2,726 $2,528 
Additions for tax positions related to the current year72 169 240 
Additions for tax positions of prior years96 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,
202320222021
Tax effected unrecognized tax benefits that, if recognized, would affect the effective tax rate$1,581 $1,973 $2,268 
Net accrued interest335 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 JurisdictionTax 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):
 202320222021
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)$459 
U.S. state105 53 108 
Non-U.S.413 294 265 
353 128 832 
Deferred
U.S. federal(267)(175)(7)
U.S. state(25)(69)46 
Non-U.S.(384)103 (3)
(676)(141)36 
Income tax provision (benefit)$(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,
 20232022
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,
 20232022
Deferred tax assets
Accrued expenses and reserves$507 $376 
Employee and retiree benefits71 78 
Property, plant and equipment629 444 
Net operating loss and other credit carryforwards6,748 6,488 
Research and development171 52 
Operating lease liabilities348 309 
Other, net38 58 
8,512 7,805 
Valuation allowances(6,378)(5,973)
2,134 1,832 
Deferred tax liabilities
Subsidiaries, joint ventures and partnerships446 338 
Intangible assets252 734 
Operating lease right-of-use assets348 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.