Income Taxes

12 Months Ended

Jun. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 19. INCOME TAXES

Income taxes are recognized for the amount of taxes payable for the current year and for the impact of deferred tax assets and liabilities, which represent future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. Deferred tax assets and liabilities are established using the enacted statutory tax rates and are adjusted for any changes in such rates in the period of change.

Income (loss) before income tax expense was attributable to the following jurisdictions:

	For the fiscal years ended June 30,
	2021		2020		2019
	(in millions)
U.S.	$	266	$	(310)	$	99
Foreign	184		(1,214)		255
Income (loss) before income tax expense	$	450	$	(1,524)	$	354

The significant components of the Company’s income tax expense were as follows:

	For the fiscal years ended June 30,
	2021		2020		2019
	(in millions)
Current:
U.S.
Federal	$	5	$	(4)	$	5
State & Local	9		3		2
Foreign	133		102		118
Total current tax	147		101		125
Deferred:
U.S.
Federal	(30)		(45)		26
State & Local	(1)		(4)		5
Foreign	(55)		(31)		(30)
Total deferred tax	(86)		(80)		1
Total income tax expense	$	61	$	21	$	126

The reconciliation between the Company’s actual effective tax rate and the statutory U.S. Federal income tax rate was as follows:

	For the fiscal years ended June 30,
	2021		2020		2019
U.S. federal income tax rate	21	%	21	%	21	%
State and local taxes, net	2		1		2
Effect of foreign operations (a)	12		(2)		9
Change in valuation allowance (b)	(16)		—		—
Non-deductible goodwill and asset impairments (c)	1		(22)		5
Non-deductible compensation and benefits	4		—		1
Remeasurement of deferred tax assets (d)	(7)		—		—
R&D credits	(2)		1		(2)
Other, net	(1)		—		—
Effective tax rate (e)	14	%	(1)	%	36	%

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(a)The Company’s effective tax rate is impacted by the geographic mix of its pre-tax income. The Company’s foreign operations are located primarily in Australia and the United Kingdom (“U.K.”). Australia has a higher income tax rate than the U.S. and the U.K. has a lower tax rate than the U.S.

(b)For the fiscal year ended June 30, 2021, the Company released valuation allowances related to U.S. Federal, State and foreign deferred tax assets of $64 million, $5 million and $6 million, respectively.

(c)For the fiscal year ended June 30, 2020, the Company recorded non-cash charges of $1,690 million related to the impairment of goodwill and indefinite-lived intangible assets, which reduced the Company’s tax expense by $262 million. These write-downs have an impact on our effective tax rate to the extent a lower tax benefit is recorded.

For the fiscal year ended June 30, 2019, the Company recorded non-cash charges of $96 million related to the impairment of goodwill and indefinite-lived intangible assets, which reduced the Company’s tax expense by $10 million. These impairments and write-downs have an impact on our effective tax rate to the extent a lower tax benefit is recorded.

(d)For the fiscal year ended June 30, 2021, the Company remeasured U.K. deferred tax assets which includes the enacted corporate income tax increase resulting from the Finance Act 2021.

(e)For the fiscal years ended June 30, 2021 and 2019, the effective tax rates of 14% and 36%, respectively, represent income tax expense when compared to consolidated pre-tax book income. For the fiscal year ended June 30, 2020, the effective tax rate of (1)% represents income tax expense when compared to consolidated pre-tax book loss.

The Company recognized deferred income taxes in the Balance Sheets as follows:

	As of June 30,
	2021		2020
	(in millions)
Deferred income tax assets	$	378	$	332
Deferred income tax liabilities	(260)		(258)
Net deferred tax assets (liabilities)	$	118	$	74

The significant components of the Company’s deferred tax assets and liabilities were as follows:

	As of June 30,
	2021		2020
	(in millions)
Deferred tax assets:
Accrued liabilities	$	169	$	100
Capital loss carryforwards	1,126		886
Retirement benefit obligations	34		56
Net operating loss carryforwards	484		578
Business tax credits	115		93
Operating lease liabilities	365		302
Other	153		197
Total deferred tax assets	2,446		2,212
Deferred tax liabilities:
Asset basis difference and amortization	(161)		(269)
Operating lease right-of-use asset	(339)		(276)
Other	(63)		(47)
Total deferred tax liabilities	(563)		(592)
Net deferred tax asset before valuation allowance	1,883		1,620
Less: valuation allowance (See Note 22—Valuation and Qualifying Accounts)	(1,765)		(1,546)
Net deferred tax assets (liabilities)	$	118	$	74

As of June 30, 2021, the Company had income tax net operating loss (“NOL”) carryforwards (gross, net of uncertain tax benefits) in various jurisdictions as follows:

Jurisdiction	Expiration	Amount (in millions)
U.S. Federal	2022 to 2037	$	273
U.S. Federal	Indefinite	471
U.S. States	Various	647
Australia	Indefinite	605
U.K.	Indefinite	29
Other Foreign	Various	459

Utilization of the NOLs is dependent on generating sufficient taxable income from our operations in each of the respective jurisdictions to which the NOLs relate, while taking into account tax filing methodologies and limitations and/or restrictions on our ability to use them. Certain of our U.S. federal NOLs were acquired as part of the acquisitions of Move and Harlequin and are

subject to limitations as promulgated under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). Section 382 of the Code limits the amount of NOLs that we can use on an annual basis to offset consolidated U.S. taxable income. The NOLs are also subject to review by relevant tax authorities in the jurisdictions to which they relate.

The Company recorded a deferred tax asset of $484 million and $578 million associated with its NOLs (net of approximately $62 million and $53 million, respectively, of unrecognized tax benefits recorded against deferred tax assets) as of June 30, 2021 and 2020, respectively. Significant judgment is applied in assessing our ability to realize our NOLs. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize existing deferred tax assets within the applicable expiration period.

On the basis of this evaluation, valuation allowances of $206 million and $269 million have been established to reduce the deferred tax asset associated with the Company’s NOLs to an amount that will more likely than not be realized as of June 30, 2021 and 2020, respectively. For the fiscal year ended June 30, 2021, the Company released valuation allowances related to U.S. Federal NOLs of $64 million as the Company concluded that these deferred tax assets will more likely than not be realized.

As of June 30, 2021, the Company had approximately $2.3 billion, $1.7 billion and $15 million of capital loss carryforwards in Australia, the U.K. and the U.S., respectively. Australia and U.K capital loss carryforwards may be carried forward indefinitely and the U.S. carryforward will expire in 2026. The capital loss carryforwards are also subject to review by relevant tax authorities in the jurisdictions to which they relate. Realization of our capital losses is dependent on generating capital gain taxable income and satisfying certain continuity of business requirements. The Company recorded a deferred tax asset of $1,126 million and $886 million as of June 30, 2021 and 2020, respectively, for these capital loss carryforwards. However, it is more likely than not that the Company will not generate capital gain income in the normal course of business in these jurisdictions. Accordingly, valuation allowances of $1,126 million and $886 million have been established to reduce the capital loss carryforward deferred tax asset to an amount that will more likely than not be realized as of June 30, 2021 and 2020, respectively. For the fiscal year ended June 30, 2021, the Company released valuation allowances related to U.K. capital losses of $6 million as the Company concluded that these deferred tax assets will more likely than not be realized.

As of June 30, 2021, the Company had approximately $72 million of U.S. federal tax credit carryforwards which includes $32 million of foreign tax credits and $40 million of research and development credits, which begin to expire in 2026 and 2036, respectively.

As of June 30, 2021, the Company had approximately $31 million of non-U.S. tax credit carryforwards which expire in various amounts beginning in 2026 and $12 million of state tax credit carryforwards (net of U.S. federal benefit), which expire in various amounts beginning in 2021.

In accordance with the Company’s accounting policy, a valuation allowance of $58 million has been established to reduce the deferred tax asset associated with the Company’s U.S. foreign tax credits, non-U.S. and state credit carryforwards to an amount that will more likely than not be realized as of June 30, 2021. For the fiscal year ended June 30, 2021, the Company released valuation allowances related to state tax credits of $5 million as the Company concluded that these deferred tax assets will more likely than not be realized.

Uncertain Tax Positions

The following table sets forth the change in the Company’s unrecognized tax benefits, excluding interest and penalties:

	For the fiscal years ended June 30,
	2021		2020		2019
	(in millions)
Balance, beginning of period	$	63	$	58	$	62
Additions for prior year tax positions	—		4		—
Additions for current year tax positions	4		8		4
Reduction for prior year tax positions	(2)		(1)		—
Lapse of the statute of limitations	(3)		(3)		(6)
Settlement—tax attributes	—		(2)		—
Impact of currency translations	7		(1)		(2)
Balance, end of period	$	69	$	63	$	58

The Company recognizes interest and penalty charges related to unrecognized tax benefits as income tax expense, which is consistent with the recognition in prior reporting periods. The Company recognized a benefit related to interest and penalties of $1 million, nil and $1 million for the fiscal years ended June 30, 2021, 2020 and 2019, respectively. The Company recorded liabilities for accrued interest and penalties of approximately $4 million, $3 million and $3 million as of June 30, 2021, 2020 and 2019, respectively.

The Company’s tax returns are subject to on-going review and examination by various tax authorities. Tax authorities may not agree with the treatment of items reported in our tax returns, and therefore the outcome of tax reviews and examinations can be unpredictable. The Company is currently undergoing tax examinations in the U.S., various states and foreign jurisdictions. During the fiscal year ended June 30, 2018, the Internal Revenue Service commenced an audit of the Company for the fiscal year ended June 30, 2014. The Company effectively settled this audit with no material changes in February 2020. During the fiscal year ended June 30, 2021 the statute of limitations related to our US federal income tax returns for the fiscal years ended June 30, 2014, 2016 and 2017 expired. No adjustments to our tax provision were recorded as a result of these statute expirations. The Internal Revenue Service has commenced an audit for the fiscal year ended June 30, 2018. The Company believes it has appropriately accrued for the expected outcome of uncertain tax matters and believes such liabilities represent a reasonable provision for taxes ultimately expected to be paid. However, the Company may need to accrue additional income tax expense and our liability may need to be adjusted as new information becomes known and as these tax examinations continue to progress, or as settlements or litigations occur.

The following is a summary of major tax jurisdictions for which tax authorities may assert additional taxes based upon tax years currently under audit and subsequent years that could be audited by the respective taxing authorities.

Jurisdiction	Fiscal Years Open to Examination
U.S. federal	2018-2020
U.S. states	Various
Australia	2017-2020
U.K.	2016-2020

It is reasonably possible that uncertain tax positions may increase or decrease in the next fiscal year, however, actual developments in this area could differ from those currently expected. As of June 30, 2021, approximately $44 million would affect the Company’s effective income tax rate, if and when recognized in future fiscal years. It is reasonably possible, the amount of uncertain tax liabilities which may be resolved within the next fiscal year is between the range of approximately nil and $35 million, a portion of which will affect our effective income tax rate, primarily as a result of the settlement of tax examinations and the lapsing of statutes of limitations.

Other

Prior to the passage of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), the Company asserted that substantially all of its undistributed earnings were considered indefinitely reinvested and accordingly, no deferred taxes were provided. Pursuant to the provisions promulgated in the Tax Act these earnings were subjected to the one-time transition tax. It is the Company’s intention to reinvest in these subsidiaries indefinitely as the Company does not anticipate the need to repatriate funds to satisfy domestic liquidity needs. An actual repatriation from these subsidiaries could be subject to foreign withholding taxes and U.S. state taxes. Calculation of the unrecognized tax liabilities is not practicable. Undistributed earnings of foreign subsidiaries considered to be indefinitely reinvested amounted to approximately $2.9 billion as of June 30, 2021.

During the fiscal years ended June 30, 2021, 2020 and 2019, the Company paid gross income taxes of $176 million, $99 million and $144 million, respectively, and received income tax refunds of $14 million, $25 million and $18 million, respectively.