Income Taxes

12 Months Ended

Jun. 30, 2022

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,
	2022		2021		2020
	(in millions)
U.S.	$	194	$	266	$	(310)
Foreign	618		184		(1,214)
Income (loss) before income tax expense	$	812	$	450	$	(1,524)

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

	For the fiscal years ended June 30,
	2022		2021		2020
	(in millions)
Current:
U.S.
Federal	$	—	$	5	$	(4)
State & Local	9		9		3
Foreign	160		133		102
Total current tax	169		147		101
Deferred:
U.S.
Federal	54		(30)		(45)
State & Local	4		(1)		(4)
Foreign	(175)		(55)		(31)
Total deferred tax	(117)		(86)		(80)
Total income tax expense	$	52	$	61	$	21

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,
	2022		2021		2020
U.S. federal income tax rate	21	%	21	%	21	%
State and local taxes, net	1		2		1
Effect of foreign operations (a)	7		12		(2)
Change in valuation allowance (b)	(19)		(16)		—
Non-deductible goodwill and asset impairments (c)	—		1		(22)
Non-deductible compensation and benefits	—		4		—
Remeasurement of deferred tax assets (d)	(2)		(7)		—
R&D tax credits	(1)		(2)		1
Impact of dispositions	(2)		—		—
Other	1		(1)		—
Effective tax rate (e)	6	%	14	%	(1)	%

________________________

(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, 2022, the Company released valuation allowances of $156 million, including $149 million related to certain Foreign deferred tax assets. For the fiscal year ended June 30, 2021, the Company released $75 million of valuation allowances, including $64 million related to certain U.S. deferred tax assets.

(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.

(d)For the fiscal year ended June 30, 2022, the Company recorded a benefit of $18 million related to the remeasurement of its U.K. deferred tax assets. For the fiscal year ended June 30, 2021, the Company recorded a benefit of $34 million related to the remeasurement of its 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, 2022 and 2021, the effective tax rates of 6% and 14%, respectively, represent income tax expense with regard to consolidated pre-tax book income. For the fiscal year ended June 30, 2020, the effective tax rate of (1)% represents income tax expense with regard to consolidated pre-tax book loss.

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

	As of June 30,
	2022		2021
	(in millions)
Deferred income tax assets	$	422	$	378
Deferred income tax liabilities	(198)		(260)
Net deferred tax assets	$	224	$	118

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

	As of June 30,
	2022		2021
	(in millions)
Deferred tax assets:
Accrued liabilities	$	173	$	169
Capital loss carryforwards	1,135		1,126
Retirement benefit obligations	24		34
Net operating loss carryforwards	408		484
Business tax credits	122		115
Operating lease liabilities	278		365
Other	151		153
Total deferred tax assets	2,291		2,446
Deferred tax liabilities:
Asset basis difference and amortization	(163)		(161)
Operating lease right-of-use asset	(257)		(339)
Other	(59)		(63)
Total deferred tax liabilities	(479)		(563)
Net deferred tax asset before valuation allowance	1,812		1,883
Less: valuation allowance (See Note 22—Valuation and Qualifying Accounts)	(1,588)		(1,765)
Net deferred tax assets	$	224	$	118

As of June 30, 2022, 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	2023 to 2037	$	149
U.S. Federal	Indefinite	435
U.S. States	Various	664
Australia	Indefinite	365
U.K.	Indefinite	12
Other Foreign	Various	590

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 groups 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 $408 million and $484 million associated with its NOLs (net of approximately $68 million and $62 million, respectively, of unrecognized tax benefits recorded against deferred tax assets) as of June 30, 2022 and 2021, 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 $122 million and $206 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, 2022 and 2021, respectively. For the fiscal year ended June 30, 2022, the Company released valuation allowances related to

Australian NOLs of $31 million that are more likely than not to be realized. For the fiscal year ended June 30, 2021, the Company released valuation allowances related to U.S. Federal NOLs of $64 million that are more likely than not to be realized.

As of June 30, 2022, the Company had approximately $2.5 billion and $1.5 billion of capital loss carryforwards in Australia and the U.K., respectively. Australia and U.K. capital loss carryforwards may be carried forward indefinitely. 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 $1.1 billion as of June 30, 2022 and 2021 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 $1.1 billion 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, 2022 and 2021. For the fiscal year ended June 30, 2022, the Company released valuation allowances related to U.S. capital losses of $3 million as the Company concluded that these deferred tax assets will more likely than not be realized and recorded valuation allowances related to U.K. capital losses of $4 million. 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, 2022, the Company had approximately $81 million of U.S. federal tax credit carryforwards which includes $35 million of foreign tax credits and $46 million of general business credits, which begin to expire in 2026 and 2036, respectively.

As of June 30, 2022, the Company had approximately $29 million of non-U.S. tax credit carryforwards which expire in various amounts beginning in 2026 and $11 million of state tax credit carryforwards (net of U.S. federal benefit), which expire in various amounts beginning in 2023.

A valuation allowance of $29 million has been established to reduce the deferred tax asset associated with the Company’s U.S. federal tax credits, non-U.S. tax credits and state tax credit carryforwards to an amount that will more likely than not be realized as of June 30, 2022. For the fiscal year ended June 30, 2022, the Company released valuation allowances of $1 million related to U.S. foreign tax credits and $26 million related to non-US tax credits that are more likely than not to 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,
	2022		2021		2020
	(in millions)
Balance, beginning of period	$	69	$	63	$	58
Additions for prior year tax positions	—		—		4
Additions for current year tax positions	28		4		8
Reduction for prior year tax positions	(1)		(2)		(1)
Lapse of the statute of limitations	(3)		(3)		(3)
Settlement—tax attributes	—		—		(2)
Impact of currency translations	(7)		7		(1)
Balance, end of period	$	86	$	69	$	63

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, $1 million and nil for the fiscal years ended June 30, 2022, 2021 and 2020, respectively. The Company recorded liabilities for accrued interest and penalties of approximately $5 million, $4 million and $3 million as of June 30, 2022, 2021 and 2020, 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. The Internal Revenue Service has commenced an audit for the fiscal year ended June 30, 2018 which is currently ongoing. The

Company effectively settled its Internal Revenue Service audit related to the fiscal year ended June 30, 2014 in February 2020 with no material changes. 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	2018-2021
U.S. states	Various
Australia	2018-2021
U.K.	2011-2021

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, 2022, approximately $63 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 $40 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 enactment of the Tax Act, the Company’s undistributed foreign earnings were considered permanently reinvested and as such, United States federal and state income taxes were not previously recorded on these earnings. As a result of the Tax Act, substantially all of the Company’s earnings in foreign subsidiaries generated prior to the enactment of the Tax Act were deemed to have been repatriated and taxed accordingly. As of June 30, 2022, the Company has approximately $900 million of undistributed foreign earnings that it intends to reinvest permanently. It is not practicable to estimate the amount of tax that might be payable if these earnings were repatriated. The Company may repatriate future earnings of certain foreign subsidiaries in which case the Company may be required to accrue and pay additional taxes, including any applicable foreign withholding taxes and income taxes.

During the fiscal years ended June 30, 2022, 2021 and 2020, the Company paid gross income taxes of $180 million, $176 million and $99 million, respectively, and received income tax refunds of $3 million, $14 million and $25 million, respectively.