v3.21.2
Income Taxes
 12 Months Ended
Sep. 30, 2021
Income Tax Disclosure [Abstract]  
Income Taxes
Note 19—Income Taxes
The Company’s income before taxes by fiscal year consisted of the following:
For the Years Ended September 30,
202120202019
 (in millions)
U.S.$11,002 $9,178 $9,536 
Non-U.S.5,061 4,612 5,348 
Total income before taxes$16,063 $13,790 $14,884 
For fiscal 2021, U.S. income before taxes included $3.1 billion, and for fiscal 2020 and 2019 included $3.0 billion, of the Company’s U.S. entities’ income from operations outside of the U.S.
Income tax provision by fiscal year consisted of the following:
For the Years Ended September 30,
202120202019
 (in millions)
Current:
U.S. federal$1,943 $1,662 $1,504 
State and local69 212 243 
Non-U.S.869 743 843 
Total current taxes2,881 2,617 2,590 
Deferred:
U.S. federal(57)42 184 
State and local(28)9 28 
Non-U.S.956 256 2 
Total deferred taxes871 307 214 
Total income tax provision$3,752 $2,924 $2,804 
At September 30, 2021 and 2020, the tax effect of temporary differences that give rise to significant portions of deferred tax assets and liabilities, are presented below:
September 30,
20212020
 (in millions)
Deferred Tax Assets:
Accrued compensation and benefits$166 $114 
Accrued litigation obligation234 204 
Client incentives327 121 
Net operating loss carryforwards104 80 
Comprehensive loss106 148 
Federal benefit of state taxes157 203 
Other55 60 
Valuation allowance(103)(84)
Deferred tax assets1,046 846 
Deferred Tax Liabilities:
Property, equipment and technology, net(346)(343)
Intangible assets(6,452)(5,492)
Unrealized gains on equity securities(203)(48)
Foreign taxes(93)(137)
Deferred tax liabilities(7,094)(6,020)
Net deferred tax liabilities$(6,048)$(5,174)
On June 10, 2021, the UK enacted legislation that increases the tax rate from 19% to 25%, effective April 1, 2023. As a result, the Company recorded a $1.0 billion non-recurring, non-cash tax expense related to the remeasurement of its UK deferred tax liabilities, primarily related to intangibles recorded upon the acquisition of Visa Europe in fiscal 2016. The increase in deferred tax liabilities reflects the remeasurement of UK deferred tax liabilities.
The American Rescue Plan Act of 2021 (the “ARP Act”) was enacted in the U.S. on March 11, 2021. The ARP Act did not have a material impact on the Company’s financial results.
At September 30, 2021 and 2020, net deferred tax assets of $80 million and $63 million, respectively, are reflected in other assets on the consolidated balance sheets.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are deductible. The fiscal 2021 and 2020 valuation allowances relate primarily to foreign net operating losses from subsidiaries acquired in recent years. 
As of September 30, 2021, the Company had $42 million federal, $15 million state and $390 million foreign net operating loss carryforwards from acquired subsidiaries. Federal net operating loss carryforwards generated in years prior to fiscal 2018 will expire in fiscal 2034 through 2037. State net operating loss carryforwards will expire in fiscal 2028 through 2035. Federal net operating losses generated after fiscal 2017 and foreign net operating losses may be carried forward indefinitely. The Company expects to fully utilize the state net operating loss carryforwards in future years.
The income tax provision differs from the amount of income tax determined by applying the applicable U.S. federal statutory rate to pretax income, as a result of the following:
 For the Years Ended September 30,
 202120202019
 (in millions, except percentages)
U.S. federal income tax at statutory rate$3,373 21 %$2,896 21 %$3,126 21 %
State income taxes, net of federal benefit222 1 %199 2 %223 2 %
Non-U.S. tax effect, net of federal benefit(505)(3 %)(483)(4 %)(527)(4 %)
Remeasurement of deferred tax balances1,007 6 %329 2 %— — %
Conclusion of audits(255)(2 %)— — %— — %
Other, net(90)— %(17)— %(18)— %
Income tax provision$3,752 23 %$2,924 21 %$2,804 19 %
In fiscal 2021 and fiscal 2020, the effective income tax rate was 23% and 21%, respectively. The effective tax rate in fiscal 2021 differs from the effective tax rate in fiscal 2020 primarily due to the following:
•during fiscal 2021, a $1.0 billion non-recurring non-cash tax expense related to the remeasurement of UK deferred tax liabilities, as discussed above;
•during fiscal 2021, $255 million of tax benefits recognized as a result of the conclusion of audits by taxing authorities; and
•during fiscal 2020, a $329 million non-recurring, non-cash tax expense related to the remeasurement of UK deferred tax liabilities, as discussed below.
In fiscal 2020 and fiscal 2019, the effective income tax rate was 21% and 19%, respectively. The effective tax rate in fiscal 2020 differs from the effective tax rate in fiscal 2019 mainly due to a $329 million non-recurring, non-cash tax expense related to the remeasurement of UK deferred tax liabilities, as a result of the enactment of UK legislation on July 22, 2020 that repealed the previous tax rate reduction from 19% to 17% that was effective April 1, 2020.
Current income taxes receivable at September 30, 2021 and 2020 of $83 million and $93 million, respectively, were included in prepaid expenses and other current assets. Non-current income taxes receivable at September 30, 2021 and 2020 of $974 million and $988 million, respectively, were included in other assets. Income taxes payable at September 30, 2021 and 2020 of $325 million and $134 million, respectively, were included in accrued liabilities. Accrued income taxes at September 30, 2021 and 2020 of $2.4 billion and $2.8 billion, respectively, were included in other liabilities.
The Company’s operating hub in the Asia Pacific region is located in Singapore. Effective October 1, 2008 through September 30, 2023, it is subject to a tax incentive which is conditional upon meeting certain business operations and employment thresholds in Singapore. The tax incentive decreased Singapore tax by $273 million, $280 million and $324 million, and the gross benefit of the tax incentive on diluted earnings per share was $0.12, $0.13 and $0.14 in fiscal 2021, 2020 and 2019, respectively.
In accordance with Accounting Standards Codification 740—Income Taxes, the Company is required to inventory, evaluate and measure all uncertain tax positions taken or to be taken on tax returns, and to record liabilities for the amount of such positions that may not be sustained, or may only partially be sustained, upon examination by the relevant taxing authorities.
At September 30, 2021, 2020, and 2019, the Company’s total gross unrecognized tax benefits were $2.5 billion, $2.6 billion and $2.2 billion, respectively, exclusive of interest and penalties described below. Included in the $2.5 billion, $2.6 billion and $2.2 billion are $1.3 billion, $1.6 billion and $1.4 billion of unrecognized tax benefits, respectively, that if recognized, would reduce the effective tax rate in a future period.
A reconciliation of beginning and ending unrecognized tax benefits by fiscal year is as follows: 
202120202019
 (in millions)
Balance at beginning of period$2,579 $2,234 $1,658 
Increases of unrecognized tax benefits related to prior years34 66 216 
Decreases of unrecognized tax benefits related to prior years(386)(83)(13)
Increases of unrecognized tax benefits related to current year326 376 384 
Decreases related to settlements with taxing authorities(63)(12)(9)
Reductions related to lapsing statute of limitations(2)(2)(2)
Balance at end of period$2,488 $2,579 $2,234 
In fiscal 2021, 2020 and 2019, the Company recognized $1 million, $68 million and $66 million of net interest expense, respectively, related to uncertain tax positions. In fiscal 2021, 2020 and 2019, the Company accrued penalties related to uncertain tax positions of $3 million, $4 million and $5 million, respectively. At September 30, 2021 and 2020, the Company had accrued interest of $233 million, and accrued penalties of $34 million and $31 million, respectively, related to uncertain tax positions included in other long-term liabilities in its consolidated balance sheets.
The Company’s U.S. federal income tax returns for fiscal 2013 through 2018 and refund claims filed for fiscal 2008 through 2012 are currently under examination. The Company’s California income tax returns for fiscal 2012 through 2015 and refund claims filed for fiscal 2006 through 2011 are currently under examination. Except for the refund claims, the federal and California statutes of limitations have expired for fiscal years prior to 2012.
In September 2020, the Company accepted a settlement offer related to the examination of Canadian tax returns dating back to fiscal 2003, which was subject to approval by the Tax Court of Canada. On January 21, 2021, the Tax Court of Canada approved the settlement agreement related to the examination. The Company’s income tax provision was adjusted to reflect the estimated impact of the settlement in fiscal 2020.
The India tax authorities completed the assessment of the Company’s income tax returns for the taxable years falling within the period from fiscal 2010 to 2018, and made certain adjustments. The Company objected to these adjustments and filed appeals to the appellate authorities. While the timing and outcome of the final resolution of these appeals are uncertain, the Company believes that its income tax provision adequately reflects its income tax obligations in India.
The Company is also subject to examinations by various state and foreign tax authorities. All material state and foreign tax matters have been concluded for years through fiscal 2007. The timing and outcome of the final resolutions of the federal, state and foreign tax examinations and refund claims are uncertain. As such, it is not reasonably possible to estimate the impact that the final outcomes could have on the Company’s unrecognized tax benefits in the next 12 months.