|
| | | | | | | | | | | |
| Fiscal |
| 2017 | | 2016 | | 2015 |
Current taxes | | | | | |
U.S. federal | $ | 152,002 |
| | $ | 314,121 |
| | $ | 617,488 |
|
U.S. state and local | 17,269 |
| | 38,255 |
| | 72,133 |
|
Non-U.S. | 1,175,962 |
| | 835,653 |
| | 906,229 |
|
Total current tax expense | 1,345,233 |
| | 1,188,029 |
| | 1,595,850 |
|
Deferred taxes | | | | | |
U.S. federal | (200,483 | ) | | 8,588 |
| | (94,621 | ) |
U.S. state and local | (26,069 | ) | | 1,056 |
| | (11,245 | ) |
Non-U.S. | (137,581 | ) | | 56,296 |
| | (353,243 | ) |
Total deferred tax (benefit) expense | (364,133 | ) | | 65,940 |
| | (459,109 | ) |
Total | $ | 981,100 |
| | $ | 1,253,969 |
| | $ | 1,136,741 |
|
The components of Income before income taxes were as follows:
|
| | | | | | | | | | | |
| Fiscal |
| 2017 | | 2016 | | 2015 |
U.S. sources (1) | $ | 251,456 |
| | $ | 1,047,909 |
| | $ | 1,321,511 |
|
Non-U.S. sources | 4,364,576 |
| | 4,555,663 |
| | 3,089,019 |
|
Total | $ | 4,616,032 |
| | $ | 5,603,572 |
| | $ | 4,410,530 |
|
| |
(1) | Includes U.S.pension settlement charges of $509,793 and $64,382 for fiscal 2017 and 2015, respectively. |
The reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate was as follows:
|
| | | | | | | | |
| Fiscal |
| 2017 | | 2016 | | 2015 |
U.S. federal statutory income tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
U.S. state and local taxes, net | 1.3 |
| | 1.1 |
| | 1.3 |
|
Non-U.S. operations taxed at lower rates | (18.0 | ) | | (12.0 | ) | | (15.4 | ) |
Final determinations (1) | (3.6 | ) | | (2.1 | ) | | (5.1 | ) |
Other net activity in unrecognized tax benefits
| 8.4 |
| | 2.7 |
| | 3.2 |
|
Change in indefinite reinvestment assertion
| (0.6 | ) | | (0.6 | ) | | 5.6 |
|
Divestitures | — |
| | (3.4 | ) | | — |
|
Excess tax benefits from share based payments | (2.7 | ) | | — |
| | — |
|
Other, net | 1.5 |
| | 1.7 |
| | 1.2 |
|
Effective income tax rate | 21.3 | % | | 22.4 | % | | 25.8 | % |
_______________
| |
(1) | Final determinations include final agreements with tax authorities and expirations of statutes of limitations. |
During fiscal 2015, the Company concluded that substantially all of the undistributed earnings of its U.S. subsidiaries would no longer be considered indefinitely reinvested and recorded an estimated tax liability of $247,097 for withholding taxes payable on the distribution of these earnings. These earnings were distributed in the form of a U.S. dividend declared and paid on August 26, 2015. The Company intends to indefinitely reinvest any future U.S. earnings. As of August 31, 2017, the Company had not recognized a deferred tax liability on $1,402,881 of undistributed earnings for certain foreign subsidiaries, because these earnings are intended to be indefinitely reinvested. If such earnings were distributed, some countries may impose additional taxes. The unrecognized deferred tax liability (the amount payable if distributed) is approximately $124,000.
Portions of the Company’s operations are subject to reduced tax rates or are free of tax under various tax holidays which expire between fiscal 2018 and 2022. Some of the holidays are renewable at reduced levels, under certain conditions, with possible renewal periods through 2032. The income tax benefits attributable to the tax status of these subsidiaries were estimated to be approximately $95,000, $100,000 and $111,000 in fiscal 2017, 2016 and 2015, respectively.
The effect on deferred tax assets and liabilities of enacted changes in tax laws and tax rates did not have a material impact on the Company’s effective tax rate.
The components of the Company’s deferred tax assets and liabilities included the following:
|
| | | | | | | |
| August 31,
2017 | | August 31,
2016 |
Deferred tax assets | | | |
Pensions | $ | 294,850 |
| | $ | 306,776 |
|
Revenue recognition | 163,393 |
| | 113,890 |
|
Compensation and benefits | 734,373 |
| | 797,707 |
|
Share-based compensation | 293,546 |
| | 262,508 |
|
Tax credit carryforwards | 1,419,506 |
| | 1,161,084 |
|
Net operating loss carryforwards | 204,803 |
| | 131,018 |
|
Depreciation and amortization | 97,076 |
| | 97,015 |
|
Deferred amortization deductions | 705,495 |
| | 687,351 |
|
Indirect effects of unrecognized tax benefits | 343,832 |
| | 354,544 |
|
Other | 122,590 |
| | 139,105 |
|
| 4,379,464 |
| | 4,050,998 |
|
Valuation allowance | (1,564,554 | ) | | (1,243,207 | ) |
Total deferred tax assets | 2,814,910 |
| | 2,807,791 |
|
Deferred tax liabilities | | | |
Revenue recognition | (80,683 | ) | | (109,749 | ) |
Depreciation and amortization | (228,166 | ) | | (205,431 | ) |
Investments in subsidiaries | (202,359 | ) | | (330,673 | ) |
Other | (225,899 | ) | | (195,646 | ) |
Total deferred tax liabilities | (737,107 | ) | | (841,499 | ) |
Net deferred tax assets | $ | 2,077,803 |
| | $ | 1,966,292 |
|
The Company recorded valuation allowances of $1,564,554 and $1,243,207 as of August 31, 2017 and 2016, respectively, against deferred tax assets principally associated with certain tax credit and tax net operating loss carryforwards, as the Company believes it is more likely than not that these assets will not be realized. For all other deferred tax assets, the Company believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize these deferred tax assets. During fiscal 2017, the Company recorded a net increase of $321,347 in the valuation allowance. The majority of this change related to valuation allowances on certain tax credit carryforwards, as the Company believes it is more likely than not that these assets will not be realized.
The Company had tax credit carryforwards as of August 31, 2017 of $1,419,506, of which $29,674 will expire between 2018 and 2027, $3,885 will expire between 2028 and 2037, and $1,385,947 has an indefinite carryforward period. The Company had net operating loss carryforwards as of August 31, 2017 of $756,010. Of this amount, $209,066 expires between 2018 and 2027, $255,183 expires between 2028 and 2037, and $291,761 has an indefinite carryforward period.
As of August 31, 2017, the Company had $945,850 of unrecognized tax benefits, of which $609,555, if recognized, would favorably affect the Company’s effective tax rate. As of August 31, 2016, the Company had $985,755 of unrecognized tax benefits, of which $508,313, if recognized, would favorably affect the Company’s effective tax rate. The remaining unrecognized tax benefits as of August 31, 2017 and 2016 of $336,295 and $477,442, respectively, represent items recorded as adjustments to fiscal 2016 equity and offsetting tax benefits associated with the correlative effects of potential transfer pricing adjustments, state income taxes and timing adjustments.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits was as follows:
|
| | | | | | | |
| Fiscal |
| 2017 | | 2016 |
Balance, beginning of year | $ | 985,755 |
| | $ | 997,935 |
|
Additions for tax positions related to the current year | 204,321 |
| | 163,097 |
|
Additions for tax positions related to prior years | 254,274 |
| | 126,353 |
|
Reductions for tax positions related to prior years | (250,135 | ) | | (63,782 | ) |
Statute of limitations expirations | (41,544 | ) | | (208,295 | ) |
Settlements with tax authorities | (221,999 | ) | | (3,703 | ) |
Foreign currency translation | 15,178 |
| | (25,850 | ) |
Balance, end of year | $ | 945,850 |
| | $ | 985,755 |
|
The Company recognizes interest and penalties related to unrecognized tax benefits in the Provision for income taxes. During fiscal 2017, 2016 and 2015, the Company recognized expense (benefit) of $37,350, $8,681 and $(17,373) in interest and penalties, respectively. Accrued interest and penalties related to unrecognized tax benefits of $98,204 ($87,417, net of tax benefits) and $109,269 ($95,057, net of tax benefits) were reflected on the Company’s Consolidated Balance Sheets as of August 31, 2017 and 2016, respectively.
The Company has participated in the U.S. Internal Revenue Service (“IRS”) Compliance Assurance Program (“CAP”) since the 2016 fiscal year. As part of CAP, tax years are audited on a contemporaneous basis so that most issues are resolved prior to the filing of the tax return. The audit by the IRS for fiscal 2013 and 2014 closed during fiscal 2017. By agreement with the IRS, the Company filed an amended return for fiscal 2015 with adjustments to which the IRS agreed.The Company is also currently under audit in numerous state and non-U.S. tax jurisdictions. Although the outcome of tax audits is always uncertain and could result in significant cash tax payments, the Company does not believe the outcome of these audits will have a material adverse effect on the Company’s consolidated financial position or results of operations. With limited exceptions, the Company is no longer subject to income tax audits by taxing authorities for the years before 2009. The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by approximately $422,000 or increase by approximately $306,000 in the next 12 months as a result of settlements, lapses of statutes of limitations, tax audit activity and other adjustments. The majority of these amounts relate to transfer pricing matters in both U.S. and non-U.S. tax jurisdictions.
As previously disclosed, in December 2016, the Swiss Federal Tax Administration notified a subsidiary of Accenture that it had opened an investigation to examine the tax treatment of an August 2010 intercompany transfer of certain intellectual property. In June 2017, we resolved this matter with the Swiss tax authorities and, in connection with that resolution, agreed to a final assessment of prior year taxes, which were paid in June.