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Income Taxes | 12 Months Ended
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Sep. 30, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | Note 7 — Income Taxes (Loss) income before income taxes comprises the following:
| 2023 |  | 2022 |  | 2021
Domestic | $ | (346) |  |  | $ | 362 |  |  | $ | 647 |
Foreign | (1,491) |  |  | 1,025 |  |  | 1,342 |
Total (loss) income before income taxes | $ | (1,837) |  |  | $ | 1,387 |  |  | $ | 1,989 |
The provisions for income taxes consist of the following:
| 2023 |  | 2022 |  | 2021
Current expense (benefit): |  |  |  |  |
Federal | $ | (1) |  |  | $ | 24 |  |  | $ | (48) |
State | 37 |  |  | 18 |  |  | 7 |
Foreign | 49 |  |  | 50 |  |  | 85 |
Total current expense | 85 |  |  | 92 |  |  | 44 |
Deferred expense (benefit): |  |  |  |  |
Federal | 34 |  |  | 45 |  |  | 168 |
State | (21) |  |  | (17) |  |  | 48 |
Foreign | (433) |  |  | 193 |  |  | 262 |
Total deferred (benefit) expense | (420) |  |  | 221 |  |  | 478 |
Total income tax (benefit) expense | $ | (335) |  |  | $ | 313 |  |  | $ | 522 |
Federal income taxes for Fiscal 2023 and Fiscal 2022 are net of foreign tax credits of $25 and $5, respectively. There were no foreign tax credits utilized in Fiscal 2021. A reconciliation from the U.S. federal statutory tax rate to our effective tax rate is as follows:
| 2023 |  | 2022 |  | 2021
U.S. federal statutory tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Difference in tax rate due to: |  |  |  |  |
Goodwill impairment not deductible for tax | (7.3) |  |  | — |  |  | — |
Effects of foreign operations | 3.9 |  |  | 4.4 |  |  | 4.6 |
State income taxes, net of federal benefit | (1.1) |  |  | 1.5 |  |  | 1.9 |
Valuation allowance adjustments | 1.1 |  |  | (0.5) |  |  | 1.0 |
Effects of tax rate changes – State, net of federal benefit | 0.2 |  |  | (1.4) |  |  | — |
Effects of tax rate changes - International | — |  |  | (2.3) |  |  | (1.3) |
Effects of U.S. tax legislation | — |  |  | — |  |  | (0.8) |
Other, net | 0.4 |  |  | (0.1) |  |  | (0.2) |
Effective tax rate | 18.2 | % |  | 22.6 | % |  | 26.2 | %
In July 2022, tax legislation was enacted in Pennsylvania reducing the state’s corporate net income tax rate from 9.99% to 4.99% over a nine-year period, beginning with an initial reduction to 8.99% beginning in Fiscal 2024. The legislation resulted in $4 and $20 of tax benefits being recorded in Fiscal 2023 and Fiscal 2022, respectively, based on the Company’s analysis of future reversals of net deferred tax liabilities. In February 2021, tax legislation was enacted in Italy which allowed the Company to align book basis with tax basis on certain assets in exchange for paying a three percent substitute tax payment payable in three annual installments. This election resulted in a $23 net benefit in Fiscal 2021. Timing of the recovery of the resulting incremental tax basis was changed with legislation in Fiscal 2022 extending the deductible period of recovery from 18 to 50 years. 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 losses generated in Fiscal 2021 to be carried back to Fiscal 2016. The carryback of our Fiscal 2021 U.S. federal tax losses from a 21% rate environment to offset taxable income in Fiscal 2016 in a 35% rate environment generated incremental benefits of $15. A $37 refund claim for the Fiscal 2021 claim has been filed and is included in “Income taxes receivable” on the Consolidated Balance Sheet at September 30, 2023 and 2022. Our effective tax rate is 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. Income tax expense for Fiscal 2023, Fiscal 2022 and Fiscal 2021 includes $13, $3, and $8, respectively, of GILTI taxes that are treated as current period costs and carry no related deferred taxes. Pennsylvania and West Virginia utility ratemaking practices permit the flow through to ratepayers of state tax benefits resulting from accelerated tax depreciation. For Fiscal 2023, Fiscal 2022 and Fiscal 2021, the beneficial effects of state tax flow through of accelerated depreciation reduced income tax expense by $11, $10, and $9, respectively. Deferred tax liabilities (assets) comprise the following at September 30:
| 2023 |  | 2022
Excess book basis over tax basis of property, plant and equipment | $ | 966 |  |  | $ | 867 |
Utility regulatory assets | 84 |  |  | 106 |
Intangible assets and goodwill | 81 |  |  | 75 |
Derivative instrument assets | 19 |  |  | 514 |
Other | 37 |  |  | 33 |
Gross deferred tax liabilities | 1,187 |  |  | 1,595 |
Investment in AmeriGas Partners | (28) |  |  | (79) |
Pension plan liabilities | (14) |  |  | (21) |
Employee-related benefits | (37) |  |  | (38) |
Operating loss carryforwards | (75) |  |  | (48) |
Foreign tax credit carryforwards | (64) |  |  | (76) |
Utility regulatory liabilities | (83) |  |  | (85) |
Utility environmental liabilities | (15) |  |  | (15) |
Interest expense | (83) |  |  | (51) |
Other | (58) |  |  | (74) |
Gross deferred tax assets | (457) |  |  | (487) |
Deferred tax assets valuation allowance | 141 |  |  | 141 |
Net deferred tax liabilities | $ | 871 |  |  | $ | 1,249 |
At September 30, 2023, we carried foreign net operating loss carryforwards of $6 relating to Flaga, $23 at certain subsidiaries of UGI France, $10 relating to Belgium, $5 relating to U.K., and $44 in the Netherlands with no expiration dates. We have state net operating loss carryforwards primarily relating to certain subsidiaries that approximate $1,071 and expire through 2043. We also have federal operating loss carryforwards of $9 for certain operations of AmeriGas Propane. At September 30, 2023, deferred tax assets relating to operating loss carryforwards amounted to $75 related to various UGI subsidiaries. Valuation allowances against deferred tax assets exist for foreign tax credit carryforwards, net operating loss carryforwards of foreign subsidiaries, capital loss carryforwards and a notional interest deduction. The valuation allowance for all deferred tax remained the same in Fiscal 2023, which included an increase of $19 for disallowed interest, an increase of $11 for foreign net operating losses, $5 for a notional interest deduction and $3 from state tax rate decreases were offset by $22 decrease against capital losses and a $16 decrease against FTC’s. The valuation allowance for all deferred tax assets increased by $3 in Fiscal 2022, which included a $17 increase in a notional interest deduction carryover, offset by a release of $6 against FTCs that will be realizable in the future, a $4 decrease from state tax rate changes, and a $4 decrease related to foreign net operating loss carry forwards. We conduct business and file tax returns in the U.S., and various local, state and foreign jurisdictions. Our U.S. federal income tax returns are settled through the 2019 tax year, and our European tax returns are effectively settled for various years from 2015 to 2020. 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. The Company’s unrecognized tax benefits including amounts related to accrued interest, which if subsequently recognized would be recorded as a benefit to income taxes, amounted to $26, $5, and $3 at September 30, 2023, 2022 and 2021, respectively. 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 is immaterial. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
| 2023 |  | 2022 |  | 2021
Unrecognized tax benefits — beginning of year | $ | 5 |  |  | $ | 3 |  |  | $ | 4 |
Additions for tax positions of the current year | 3 |  |  | 2 |  |  | — |
Decreases for tax positions taken in prior years | — |  |  | — |  |  | (2) |
Increases for tax positions taken in prior years | 19 |  |  | 1 |  |  | 1 |
Settlements with tax authorities/statute lapses | (1) |  |  | (1) |  |  | — |
Unrecognized tax benefits — end of year | $ | 26 |  |  | $ | 5 |  |  | $ | 3 |

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