Entity information:
Taxes on Income
Taxes on income were as follows:
(in millions)
 
 
 
 
 
 
for the fiscal years ended September 30,
 
2017
 
2016
 
2015
Current expense
 
 
 
 
 
 
Federal
 
$
585.0

 
$
582.8

 
$
733.9

State
 
65.3

 
47.5

 
83.1

Non-U.S.
 
100.2

 
102.8

 
121.1

Deferred expense (benefit)
 
8.9

 
9.0

 
(14.4
)
Total
 
$
759.4

 
$
742.1

 
$
923.7


The tax benefit from the utilization of net operating loss carry-forwards was insignificant in fiscal years 2017, 2016 and 2015. The Company had tax shortfalls of $8.7 million and $5.9 million in fiscal years 2017 and 2016 associated with stock-based compensation plans, which increased the amount of income taxes that would have otherwise been payable, and a tax benefit of $10.9 million in fiscal year 2015 which reduced the amount of income taxes that would have otherwise been payable. The tax shortfalls and benefit are reflected as components of stockholders’ equity.
Income before taxes consisted of the following:
(in millions)
 
 
 
 
 
 
for the fiscal years ended September 30,
 
2017
 
2016
 
2015
U.S.
 
$
1,594.5

 
$
1,641.7

 
$
2,026.4

Non-U.S.
 
954.6

 
858.1

 
1,002.0

Total
 
$
2,549.1

 
$
2,499.8

 
$
3,028.4


The Company’s income in certain countries is subject to reduced tax rates due to tax rulings. The impact of the reduced rates on income tax expense was $28.8 million or $0.05 per diluted share for fiscal year 2017, $34.2 million or $0.06 per diluted share for fiscal year 2016, and $68.3 million or $0.11 per diluted share for fiscal year 2015. The tax rulings will expire in fiscal years 2019 and 2022.
The significant components of deferred tax assets and deferred tax liabilities were as follows:
(in millions)
 
 
 
 
as of September 30,
 
2017
 
2016
Deferred Tax Assets
 
 
 
 
Deferred compensation and employee benefits
 
$
60.2

 
$
52.9

Stock-based compensation
 
36.1

 
36.6

Net operating loss carry-forwards
 
28.4

 
32.5

Tax benefit for uncertain tax positions
 
17.9

 
19.8

Other
 
23.9

 
12.5

Total deferred tax assets
 
166.5

 
154.3

Valuation allowance for net operating loss carry-forwards
 
(25.2
)
 
(24.6
)
Deferred tax assets, net of valuation allowance
 
141.3

 
129.7

Deferred Tax Liabilities
 
 
 
 
Goodwill and other purchased intangibles
 
205.2

 
202.8

Depreciation on fixed assets
 
35.3

 
18.0

Investments in partnerships
 
26.0

 
17.9

Deferred commissions
 
15.0

 
18.3

Other
 
14.6

 
16.5

Total deferred tax liabilities
 
296.1

 
273.5

Net Deferred Tax Liability
 
$
154.8

 
$
143.8


Deferred income tax assets and liabilities that relate to the same tax jurisdiction are presented net on the consolidated balance sheets. The components of the net deferred tax liability were classified in the consolidated balance sheets as follows:
(in millions)
 
 
 
 
as of September 30,
 
2017
 
2016
Other assets
 
$
15.8

 
$
17.7

Deferred tax liabilities
 
170.6

 
161.5

Net Deferred Tax Liability
 
$
154.8

 
$
143.8

 
At September 30, 2017, there were $131.4 million of non-U.S. net operating loss carry-forwards, $62.4 million of which expire between fiscal years 2019 and 2038 with the remaining carry-forwards having an indefinite life. In addition, there were $32.2 million in state net operating loss carry-forwards that expire between fiscal years 2020 and 2037. A partial valuation allowance has been provided to offset the related deferred tax assets due to the uncertainty of realizing the benefit of the net operating loss carry-forwards. The valuation allowance increased $0.6 million in fiscal year 2017 and decreased $9.4 million in fiscal year 2016.
The Company has made no provision for U.S. income taxes on $9.0 billion of cumulative undistributed non-U.S. earnings that are indefinitely reinvested at September 30, 2017. Determination of the potential amount of unrecognized deferred U.S. income tax liability related to such reinvested non-U.S. earnings is not practicable because of the numerous assumptions associated with this hypothetical calculation. However, foreign tax credits would be available to reduce some portion of this amount. Changes to the Company’s policy of reinvestment or repatriation of non-U.S. earnings may have a significant effect on its financial condition and results of operations.
A reconciliation of the amount of tax expense at the federal statutory rate and taxes on income as reflected in the consolidated statements of income is as follows:
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
for the fiscal years ended September 30,
 
2017
 
2016
 
2015
Federal taxes at statutory rate
 
$
892.2

 
35.0
%
 
$
874.9

 
35.0
%
 
$
1,059.9

 
35.0
%
State taxes, net of federal tax effect
 
41.4

 
1.6
%
 
42.7

 
1.7
%
 
51.6

 
1.7
%
Effect of non-U.S. operations
 
(146.2
)
 
(5.7
%)
 
(153.0
)
 
(6.1
%)
 
(148.5
)
 
(4.9
%)
Effect of net income attributable to noncontrolling interests
 
(32.6
)
 
(1.3
%)
 
(10.9
)
 
(0.4
%)
 
(24.3
)
 
(0.8
%)
Other
 
4.6

 
0.2
%
 
(11.6
)
 
(0.5
%)
 
(15.0
)
 
(0.5
%)
Tax Provision
 
$
759.4

 
29.8
%
 
$
742.1

 
29.7
%
 
$
923.7

 
30.5
%

A reconciliation of the beginning and ending balances of gross unrecognized tax benefits is as follows:
(in millions)
 
 
 
 
 
 
for the fiscal years ended September 30,
 
2017
 
2016
 
2015
Balance at beginning of year
 
$
82.1

 
$
105.2

 
$
118.2

Additions for tax positions of prior years
 
6.6

 
0.6

 
12.6

Reductions for tax positions of prior years
 
(1.3
)
 
(9.0
)
 
(3.4
)
Tax positions related to the current year
 
11.6

 
12.9

 
16.2

Settlements with taxing authorities
 
(5.2
)
 
(5.4
)
 
(0.1
)
Expirations of statute of limitations
 
(12.7
)
 
(22.2
)
 
(38.3
)
Balance at End of Year
 
$
81.1

 
$
82.1

 
$
105.2


If recognized, substantially all of the balance, net of any deferred tax benefits, would favorably affect the Company’s effective income tax rate in future periods.
Accrued interest on uncertain tax positions at September 30, 2017 and 2016 was $10.4 million and $9.6 million, and is not presented in the unrecognized tax benefits table above. Interest expense (benefit) of $1.6 million, $(1.3) million and $(6.6) million was recognized during fiscal years 2017, 2016 and 2015. Accrued penalties at September 30, 2017 and 2016 were insignificant.
The Company files a consolidated U.S. federal income tax return, multiple U.S. state and local income tax returns, and income tax returns in multiple non-U.S. jurisdictions. The Company is subject to examination by the taxing authorities in these jurisdictions. The Company’s major tax jurisdictions and the tax years for which the statutes of limitations have not expired are as follows: India 2003 to 2017; Canada 2010 to 2017; Hong Kong 2011 to 2017; Singapore 2012 to 2017; Luxembourg 2014 to 2017; the U.K. 2015 to 2017; U.S. federal 2014 to 2017; the States of California and Florida 2013 to 2017; the States of Massachusetts and New York, and City of New York 2014 to 2017; and the State of Minnesota 2015 to 2017.
The Company has on-going examinations in various stages of completion in the States of California, Missouri and New York, and in Canada, Hong Kong, India and Switzerland. Examination outcomes and the timing of settlements are subject to significant uncertainty. Such settlements may involve some or all of the following: the payment of additional taxes, the adjustment of deferred taxes and/or the recognition of unrecognized tax benefits. The Company has recognized a tax benefit only for those positions that meet the more-likely-than-not recognition threshold. It is reasonably possible that the total unrecognized tax benefit as of September 30, 2017 could decrease by an estimated $12.6 million within the next twelve months as a result of the expiration of statutes of limitations in the U.S. federal and certain U.S. state and local and non-U.S. tax jurisdictions, and potential settlements with U.S. states and non-U.S. taxing authorities.