Income Taxes

6 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company computes its provision for income taxes by applying the estimated annual effective tax rate to year-to-date ordinary income and adjusts the provision for discrete tax items recorded in the period. In each quarter, the Company updates the estimated annual effective tax rate and make a year-to-date adjustment to the provision. The estimated annual effective tax rate is subject to volatility due to several factors, including changes in the Company’s domestic and foreign earnings, current cash taxes in jurisdictions with full valuation allowances, material discrete tax items, or a combination of these factors as a result of certain transactions or events.

The Company reported an income tax provision of $100.5 million on pretax loss of $104.5 million and an income tax provision of $108.5 million on pretax loss of $110.2 million for the three and six months ended December 31, 2022, respectively, as compared to an income tax provision of $2.1 million on pretax loss of $20.2 million and an income tax provision of $2.7 million on pretax loss of $430.8 million for the three and six months ended December 31, 2021, respectively. The income tax provision for the three and six months ended December 31, 2022 reflects an increase in tax expense primarily attributable to the recognition of a reserve for uncertain tax positions, overall growth in foreign jurisdictions associated with an increase in profit and non-deductible stock-based compensation. The Company’s effective tax rate substantially differed from the U.S. statutory income tax rate of 21.0% primarily due to the recognition of a reserve for uncertain tax positions, different tax rates, non-deductible stock-based compensation in foreign jurisdictions, in addition to full valuation allowances in the U.S. and Australia.

Since fiscal year 2020, the Company has been in unilateral Advanced Pricing Agreement (“APA”) negotiations with the Australian Taxation Office (“ATO”) relating to the Company’s transfer pricing arrangements between Australia and the U.S. During the three months ended December 31, 2022, the ATO and the Company discussed, for the first time, a framework to resolve the Company’s transfer pricing arrangements for the APA period (tax years ended June 30, 2019 to June 30, 2025). Given the stage of discussions with ATO during the three months ended December 31, 2022, the Company recorded a reserve for uncertain tax positions of $83.0 million based upon applying the recognition and measurement thresholds of ASC 740. Although the Company’s recorded tax reserves are the best estimate of its liabilities, differences may occur in the future, depending on resolution of the APA negotiations. The negotiations are expected to be finalized within the next 12 months. The gross unrecognized tax

benefit of $83.0 million, if realized, would affect the Company’s effective tax rate. The Company does not have any other material audits or negotiations that are currently in progress.

The Tax Cuts and Jobs Act (the “TCJA”), enacted on December 22, 2017, eliminates the option to deduct research and development expenditures, instead requiring taxpayers to capitalize and amortize such expenditures over five or fifteen years beginning in fiscal year 2023. If not deferred, modified or repealed, this provision may materially increase future cash taxes.

The Inflation Reduction Act of 2022 (the “IRA”) was enacted on August 16, 2022 and includes various corporate tax provisions, including a new alternative corporate minimum tax on applicable corporations with adjusted financial statement income exceeding $1 billion, on average, over the last three years. As of December 31, 2022, the newly enacted tax provisions are not applicable to the Company.

The Company regularly assesses the need for a valuation allowance against its deferred tax assets. The Company’s assessment is based on all positive and negative evidence related to the realizability of such deferred tax assets. Based on available objective evidence as of December 31, 2022, the Company will continue to maintain a full valuation allowance on its U.S. federal, U.S. state, and Australian deferred tax assets as it is more likely than not that these deferred tax assets will not be realized. The Company intends to maintain the full valuation allowance until sufficient positive evidence exists to support the reversal of, or decrease in, the valuation allowance.