INCOME TAXES

12 Months Ended

Jun. 30, 2023

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

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.

We have elected to account for the tax effects of Global Intangible Low-Taxed Income (GILTI) as a current period expense when incurred.

Earnings before income taxes consisted of the following:

Fiscal years ended June 30	2023		2022		2021
United States	$	12,107	$	11,698	$	10,858
International	6,246		6,297		6,757
TOTAL	$	18,353	$	17,995	$	17,615

Income taxes consisted of the following:

Fiscal years ended June 30	2023		2022		2021
CURRENT TAX EXPENSE
U.S. federal	$	2,303	$	1,916	$	1,663
International	1,412		1,333		1,534
U.S. state and local	353		355		324
TOTAL	4,068		3,604		3,521
DEFERRED TAX EXPENSE/(BENEFIT)
U.S. federal	(224)		(320)		(65)
International and other	(229)		(82)		(193)
TOTAL	(453)		(402)		(258)
TOTAL TAX EXPENSE	$	3,615	$	3,202	$	3,263

A reconciliation of the U.S. federal statutory income tax rate to our actual effective income tax rate is provided below:

Fiscal years ended June 30	2023		2022		2021
U.S. federal statutory income tax rate	21.0	%	21.0	%	21.0	%
Country mix impacts of foreign operations	(0.5)	%	(0.3)	%	(0.5)	%
State income taxes, net of federal benefit	1.6	%	1.5	%	1.3	%
Excess tax benefits from the exercise of stock options	(1.0)	%	(2.0)	%	(1.6)	%
Foreign derived intangible income deduction (FDII)	(0.8)	%	(1.1)	%	(1.0)	%
Changes in uncertain tax positions	0.1	%	(0.4)	%	(0.1)	%
Other	(0.7)	%	(0.9)	%	(0.6)	%
EFFECTIVE INCOME TAX RATE	19.7	%	17.8	%	18.5	%

Country mix impacts of foreign operations includes the effects of foreign subsidiaries' earnings taxed at rates other than the U.S. statutory rate, the U.S. tax impacts of non-U.S. earnings repatriation and any net impacts of intercompany transactions. Changes in uncertain tax positions represent changes in our net liability related to prior year tax positions. Excess tax benefits from the exercise of stock options reflect the excess of actual tax benefits received on employee exercises of stock options and other share-based payments (which generally equals the income taxable to the employee) over the amount of tax benefits that were calculated and recognized based on the grant date fair values of such instruments.

Tax benefits credited to shareholders' equity totaled $190 for the fiscal year ended June 30, 2023. This primarily relates to the tax effects of net investment hedges. Tax costs charged to shareholders' equity totaled $1,538 for the fiscal year ended June 30, 2022. This primarily relates to the tax effects of certain adjustments to pension obligations recorded in shareholders' equity and the tax effects of net investment hedges.

Prior to the passage of the U.S. Tax Act, the Company asserted that substantially all of the undistributed earnings of its foreign subsidiaries were considered indefinitely invested and, accordingly, no deferred taxes were provided. Pursuant to the provisions of the U.S. Tax Act, these earnings were subjected to a one-time transition tax. This charge included taxes for all U.S. income taxes and for the related foreign withholding taxes for the portion of those earnings which are no longer considered indefinitely invested. We have not provided deferred taxes on approximately $24 billion of earnings that are considered indefinitely invested.

A reconciliation of the beginning and ending liability for uncertain tax positions is as follows:

Fiscal years ended June 30	2023		2022		2021
BEGINNING OF YEAR	$	583	$	627	$	485
Increases in tax positions for prior years	113		102		157
Decreases in tax positions for prior years	(119)		(118)		(34)
Increases in tax positions for current year	60		53		60
Settlements with taxing authorities	(108)		(42)		(26)
Lapse in statute of limitations	(7)		(17)		(24)
Currency translation	(7)		(22)		9
END OF YEAR	$	515	$	583	$	627

Included in the total liability for uncertain tax positions at June 30, 2023, is $354 that, depending on the ultimate resolution, could impact the effective tax rate in future periods.

The Company is present in approximately 70 countries and over 150 taxable jurisdictions and, at any point in time, has 30-40 jurisdictional audits underway at various stages of completion. We evaluate our tax positions and establish liabilities for uncertain tax positions that may be challenged by local authorities and may not be fully sustained, despite our belief that the underlying tax positions are fully supportable. Uncertain tax positions are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress of tax audits, developments in case law and the closing of statutes of limitation. Such adjustments are reflected in the tax provision as appropriate. We have tax years open ranging from 2010 and forward. We are generally not able to reliably estimate the ultimate settlement amounts until the close of the audit. Based on information currently available, we anticipate that over the next 12-month period, audit activity could be completed related to uncertain tax positions in multiple jurisdictions for which we have accrued existing liabilities of approximately $40, including interest and penalties.

We recognize the additional accrual of any possible related interest and penalties relating to the underlying uncertain tax position in income tax expense. As of June 30, 2023, 2022 and 2021, we had accrued interest of $143, $179 and $166 and accrued penalties of $12, $12 and $10, respectively, which are not included in the above table. During the fiscal years ended June 30, 2023, 2022 and 2021, we recognized $23, $21 and $38 in interest expense and $1, $2 and $6 in penalties expense, respectively.

Deferred income tax assets and liabilities were comprised of the following:

As of June 30	2023		2022
DEFERRED TAX ASSETS
Loss and other carryforwards	$	1,014	$	914
Capitalized research & development	930		646
Pension and other retiree benefits	737		740
Accrued marketing and promotion	421		420
Stock-based compensation	412		386
Unrealized loss on financial and foreign exchange transactions	282		138
Fixed assets	223		209
Lease liabilities	197		185
Other	874		862
Valuation allowances	(403)		(409)
TOTAL	$	4,687	$	4,091
DEFERRED TAX LIABILITIES
Goodwill and other intangible assets	$	5,811	$	5,783
Fixed assets	1,556		1,542
Other retiree benefits	1,101		1,031
Unrealized gain on financial and foreign exchange transactions	198		439
Lease right-of-use assets	191		179
Foreign withholding tax on earnings to be repatriated	96		70
Other	381		244
TOTAL	$	9,334	$	9,288

Net operating loss carryforwards were $2.9 billion at June 30, 2023, and $2.5 billion at June 30, 2022. If unused, approximately $300 will expire between 2023 and 2042. The remainder, totaling $2.6 billion at June 30, 2023, may be carried forward indefinitely.