Johnson Controls 2015 Annual Report Download - page 37

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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 the fourth quarter of fiscal 2014, the Company performed an analysis related to the realizability of its worldwide deferred tax
assets. As a result, and after considering tax planning initiatives and other positive and negative evidence, the Company determined
that it was more likely than not that deferred tax assets within Italy would not be realized. Therefore, the Company recorded $34
million of net valuation allowances as income tax expense in the three month period ended September 30, 2014.
In the first quarter of fiscal 2014, the Company determined that it was more likely than not that the deferred tax asset associated
with a capital loss in Mexico would not be utilized. Therefore, the Company recorded a $21 million valuation allowance as income
tax expense.
In the fourth quarter of fiscal 2013, the Company determined that it was more likely than not that deferred tax assets within Germany
and Poland would not be realized. The Company also determined that it was more likely than not that the deferred tax assets within
two French Power Solutions entities would be realized. Therefore, the Company recorded $145 million of net valuation allowances
as income tax expense in the three month period ended September 30, 2013.
In the second quarter of fiscal 2013, the Company determined that it was more likely than not that a portion of the deferred tax
assets within Brazil and Germany would not be realized. Therefore, the Company recorded $94 million of valuation allowances
as income tax expense.
Uncertain Tax Positions
The Company is subject to income taxes in the U.S. and numerous foreign 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.
In the third quarter of fiscal 2013, tax audit resolutions resulted in a net $79 million benefit to income tax expense.
As a result of foreign law changes during the second quarter of fiscal 2013, the Company increased its total reserve for uncertain
tax positions, resulting in income tax expense of $17 million.
The Company’s federal income tax returns and certain non-U.S. income tax returns for various fiscal years remain under various
stages of audit by the IRS and respective non-U.S. tax authorities. Although the outcome of tax audits is always uncertain,
management believes that it has appropriate support for the positions taken on its tax returns and that its annual tax provisions
included amounts sufficient to pay assessments, if any, which may be proposed by the taxing authorities. At September 30, 2014,
the Company had recorded a liability for its best estimate of the probable loss on certain of its tax positions, the majority of which
is included in other noncurrent liabilities in the consolidated statements of financial position. Nonetheless, the amounts ultimately
paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each
year.
Other Tax Matters
During fiscal 2014 and 2013, the Company incurred significant charges for restructuring and impairment costs. Refer to Note 16,
"Significant Restructuring and Impairment Costs," of the notes to consolidated financial statements for additional information. A
substantial portion of these charges cannot be benefited for tax purposes due to our current tax position in these jurisdictions and
the underlying tax basis in the impaired assets, resulting in $75 million and $238 million incremental tax expense in fiscal 2014
and 2013, respectively.
During the fourth quarter of fiscal 2014, the Company recorded a discrete tax benefit of $51 million due to change in entity status.
In the third quarter of fiscal 2014, the Company disposed of its Automotive Experience Interiors headliner and sun visor product
lines. Refer to Note 2, "Acquisitions and Divestitures," of the notes to consolidated financial statements for additional information.
As a result, the Company recorded a pre-tax loss on divestiture of $95 million and income tax expense of $38 million. The income
tax expense is due to the jurisdictional mix of gains and losses on the sale, which resulted in non-benefited losses in certain countries
and taxable gains in other countries.