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Income Taxes | 12 Months Ended
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Sep. 30, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Note 7 — Income Taxes Income before income taxes comprises the following:
| 2020 |  | 2019 |  | 2018
Domestic | $ | 424 |  |  | $ | 330 |  |  | $ | 576 |
Foreign | 243 |  |  | 71 |  |  | 279 |
Total income before income taxes | $ | 667 |  |  | $ | 401 |  |  | $ | 855 |
The provisions for income taxes consist of the following:
| 2020 |  | 2019 |  | 2018
Current expense (benefit): |  |  |  |  |
Federal | $ | (85) |  |  | $ | 52 |  |  | $ | (2) |
State | 4 |  |  | 14 |  |  | 26 |
Foreign | 70 |  |  | 70 |  |  | 78 |
Total current (benefit) expense | (11) |  |  | 136 |  |  | 102 |
Deferred expense (benefit): |  |  |  |  |
Federal | 135 |  |  | 3 |  |  | (78) |
State | 19 |  |  | 4 |  |  | 7 |
Foreign | (8) |  |  | (50) |  |  | 2 |
Total deferred expense (benefit) | 146 |  |  | (43) |  |  | (69) |
Total income tax expense | $ | 135 |  |  | $ | 93 |  |  | $ | 33 |
Federal income taxes for Fiscal 2019 and Fiscal 2018 are net of foreign tax credits of $10 and $13, respectively. There were no foreign tax credits utilized in Fiscal 2020. A reconciliation from the U.S. federal statutory tax rate to our effective tax rate is as follows:
| 2020 |  | 2019 |  | 2018
U.S. federal statutory tax rate | 21.0 | % |  | 21.0 | % |  | 24.5 | %
Difference in tax rate due to: |  |  |  |  |
Effect of U.S. tax legislation | (4.7) |  |  | 0.2 |  |  | (20.9) |
Effect of tax rate changes - International | 0.3 |  |  | (0.5) |  |  | (2.1) |
Noncontrolling interests not subject to tax | — |  |  | (2.7) |  |  | (3.0) |
State income taxes, net of federal benefit | 2.8 |  |  | 3.6 |  |  | 2.9 |
Valuation allowance adjustments | — |  |  | — |  |  | 1.1 |
Effects of foreign operations | 1.3 |  |  | 1.8 |  |  | 3.1 |
Excess tax benefits on share-based payments | (0.2) |  |  | (1.0) |  |  | (1.1) |
Other, net | (0.3) |  |  | 0.7 |  |  | (0.7) |
Effective tax rate | 20.2 | % |  | 23.1 | % |  | 3.8 | %
On March 27, 2020 the CARES Act was enacted into law. The primary impact of the legislation was the change in federal net operating loss carryback rules which allowed the Company’s U.S. federal tax loss generated in Fiscal 2020 to be carried back to Fiscal 2015. The carryback of our Fiscal 2020 U.S. federal tax loss in a 21% rate environment to offset taxable income in Fiscal 2015 in a 35% rate environment generated an incremental $32 benefit in the current year. The expected $80 refund is included in “Income taxes receivable” on the 2020 Consolidated Balance Sheet. On July 20, 2020 the Treasury Department issued final regulations under IRC Section 951A permitting a taxpayer to elect to exclude from its inclusion of GILTI items of income subject to a high effective rate of foreign tax. The impact of these final regulations reduced U.S. tax of foreign source income in Fiscal 2020. On December 22, 2017, the TCJA was enacted into law. Among the significant changes resulting from the law, the TCJA reduced the U.S. federal income tax rate from 35% to 21%, effective January 1, 2018, created a territorial tax system with a one-time mandatory “toll tax” on previously un-repatriated foreign earnings, and allowed for immediate capital expensing of certain qualified property. It also applied restrictions on the deductibility of interest expense, eliminated bonus depreciation for regulated utilities and certain FERC-regulated property beginning in Fiscal 2019 and applied a broader application of compensation limitations. As a result of the TCJA, we reduced our net deferred income tax liabilities in Fiscal 2018 by $384 due to the remeasuring of our existing federal deferred income tax assets and liabilities as of the date of the enactment of the TCJA on December 22, 2017. Because most of the reduction to UGI Utilities’ net deferred income taxes related to regulated utility plant assets, most of UGI Utilities’ reduction in deferred income taxes was not recognized immediately in income tax expense. In accordance with GAAP as determined by ASC 740, we are required to record the effects of tax law changes in the period enacted. Our results for Fiscal 2018 contained provisional estimates of the impact of the TCJA as such amounts used estimates for tax returns that had not yet been filed and because estimated amounts could have been impacted by future regulatory and accounting guidance if and when issued. As permitted by SEC Staff Bulletin No. 118, adjustments to provisional amounts recorded in prior periods were made during Fiscal 2019 and were not material. In Fiscal 2018, we were subject to a blended federal tax rate of 24.5% because our fiscal year contained the effective date of the rate change from 35% to 21%. The effects of the tax law changes on Fiscal 2018 results (excluding the remeasurement impact described above) decreased income tax by $52. In Fiscal 2018, earnings of the Company’s foreign subsidiaries were generally subject to U.S. taxation upon repatriation to the U.S. and the Company’s tax provisions reflected the related incremental U.S. tax except for certain foreign subsidiaries whose unremitted earnings were considered to be indefinitely reinvested. No deferred tax liability had been recognized with regard to remittance of those earnings because of the availability of U.S. foreign tax credits made it likely that no U.S. tax would be due if such earnings were repatriated. Upon enactment of the TCJA, substantially all prior unrepatriated earnings were subjected to U.S. tax under the transition tax rules. The transition tax was immaterial to the Company and we generally expect to have the ability to repatriate prior unrepatriated earnings without material U.S. federal tax cost. Our Fiscal 2020 and Fiscal 2019 effective tax rate was subject to the impact of changes to the taxation of foreign source income made by the TCJA and the high tax exception regulations issued in July 2020. Fiscal 2020 and Fiscal 2019 tax expense includes $2 and $4, respectively, of GILTI and Branch taxes that are treated as current period costs and carry no related deferred taxes. Pennsylvania utility ratemaking practice permits the flow through to ratepayers of state tax benefits resulting from accelerated tax depreciation. For Fiscal 2020, Fiscal 2019 and Fiscal 2018, the beneficial effects of state tax flow through of accelerated depreciation reduced income tax expense by $11, $7 and $4, respectively. Deferred tax liabilities (assets) comprise the following at September 30:
| 2020 |  | 2019
Excess book basis over tax basis of property, plant and equipment | $ | 830 |  |  | $ | 805 |
Utility regulatory assets | 112 |  |  | 108 |
Intangible assets and goodwill | 107 |  |  | 71 |
Other | 32 |  |  | 7 |
Gross deferred tax liabilities | 1,081 |  |  | 991 |
Investment in AmeriGas Partners | (216) |  |  | (304) |
Pension plan liabilities | (48) |  |  | (50) |
Employee-related benefits | (46) |  |  | (44) |
Operating loss carryforwards | (34) |  |  | (21) |
Foreign tax credit carryforwards | (81) |  |  | (81) |
Utility regulatory liabilities | (94) |  |  | (94) |
Derivative instruments | (26) |  |  | (15) |
Utility environmental liabilities | (16) |  |  | (15) |
Other | (54) |  |  | (34) |
Gross deferred tax assets | (615) |  |  | (658) |
Deferred tax assets valuation allowance | 105 |  |  | 91 |
Net deferred tax liabilities | $ | 571 |  |  | $ | 424 |
As a result of the AmeriGas Merger in Fiscal 2019, we acquired all of the equity interests of AmeriGas Partners. In exchange for the interest acquired from the public, we issued stock and paid cash having a total implied fair value of $2,228. The transaction represents a taxable exchange for which we received a step-up in the tax basis in the underlying assets acquired. A gross deferred tax asset of $2,030 related to the book tax basis difference in this investment was recorded in Fiscal 2019 through equity in accordance with ASC 810. We evaluated the realizability of the resulting net deferred tax asset position of $512 assessing the available positive and negative evidence. As the taxable temporary differences of the Partnership’s tax depreciation in excess of book depreciation reverses, the associated deferred taxes are expected to be fully realized. In December 2017, the French Parliament approved the December 2017 French Finance Bills. One impact of the December 2017 French Finance Bills was an increase in the Fiscal 2018 corporate income tax rate in France from 34.4% to 39.4%. The December 2017 French Finance Bills also included measures to gradually reduce the corporate income tax rate to 25.8%, effective for fiscal years starting after January 1, 2022 (Fiscal 2023). In July 2019, the French Parliament enacted legislation retroactively increasing the corporate income tax rate for tax years beginning in 2019 that had previously been reduced by the December 2017 French Finance Bills. As a result, the Fiscal 2020 tax rate remained at 34.43% for Fiscal 2019. The impact on deferred income tax liabilities increased income tax expense by $2 during Fiscal 2019. In December 2019, the French Parliament enacted additional legislation revising the rates enacted for Fiscal 2021 and Fiscal 2022, but retained the corporate income tax rate of 25.8%, effective for fiscal years starting after January 1, 2022 (Fiscal 2023). The impact on deferred income tax liabilities was not material during Fiscal 2020. As a result of the December 2017 French Finance Bills, during Fiscal 2018, the Company reduced its net French deferred income tax liabilities and recognized an estimated deferred tax benefit of $12 to reflect the estimated impact of the corporate income tax rate reductions that will be implemented through Fiscal 2023. The Company’s Fiscal 2018 effective income tax rate reflects the impact of the higher Fiscal 2018 income tax rate in France as a result of the December 2017 French Finance Bills, which increased income tax expense for the year by approximately $1. At September 30, 2020, foreign net operating loss carryforwards principally relating to Flaga and certain subsidiaries of UGI France totaled $11 and $14, respectively, with no expiration dates. We have state net operating loss carryforwards primarily relating to certain subsidiaries that approximate $393 and expire through 2040. We also have federal operating loss carryforwards of $12 for certain operations of AmeriGas Propane that expire through 2036. At September 30, 2020, deferred tax assets relating to operating loss carryforwards include $2 for Flaga, $5 for certain subsidiaries of UGI France, $2 for AmeriGas Propane and $25 for certain other subsidiaries. Valuation allowances against deferred tax assets exist for foreign tax credit carryforwards, net operating loss carryforwards of foreign subsidiaries and a notional interest deduction. The valuation allowance for all deferred tax assets increased by $14 in Fiscal 2020 largely related to a $16 increase in a notional interest deduction carryover. The valuation allowance for deferred tax assets decreased by $26 in Fiscal 2019 consisting primarily of the release of $25 of valuation allowances on foreign tax credits that expired in Fiscal 2019. We conduct business and file tax returns in the U.S., numerous states, local jurisdictions and in France and certain other European countries. Our U.S. federal income tax returns are settled through the 2017 tax year, our French tax returns are settled through the 2016 tax year, our Austrian tax returns are settled through 2016 and our other European tax returns are effectively settled for various years from 2012 to 2016. State and other income tax returns in the U.S. are generally subject to examination for a period of three to five years after the filing of the respective returns. As of September 30, 2020, we have unrecognized income tax benefits totaling $4 including related accrued interest. If these unrecognized tax benefits were subsequently recognized, $4 would be recorded as a benefit to income taxes on the Consolidated Statement of Income and, therefore, would impact the reported effective tax rate. Generally, a net reduction in unrecognized tax benefits could occur because of the expiration of the statute of limitations in certain jurisdictions or as a result of settlements with tax authorities. The expected change in unrecognized tax benefits and related interest in the next twelve months as the result of the expiration of certain statutes of limitation is not material. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
| 2020 |  | 2019 |  | 2018
Unrecognized tax benefits — beginning of year | $ | 11 |  |  | $ | 12 |  |  | $ | 12 |
Additions for tax positions of the current year | 2 |  |  | 1 |  |  | 2 |
Additions for tax positions taken in prior years | — |  |  | — |  |  | 1 |
Settlements with tax authorities/statute lapses | (9) |  |  | (2) |  |  | (3) |
Unrecognized tax benefits — end of year | $ | 4 |  |  | $ | 11 |  |  | $ | 12 |

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