Income Taxes

12 Months Ended

Jun. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income before income taxes for the years ended June 30, 2022, 2021 and 2020, was taxed under the following jurisdictions (in thousands):

	2022		2021		2020
U.S.	$	(85,919)	$	71,867	$	60,548
Non-U.S.	1,046,402		811,795		672,540
Income before income taxes	$	960,483	$	883,662	$	733,088

The provision for income taxes is presented below (in thousands):

		2022		2021		2020
Current:	Federal	$	4,376	$	(115,109)	$	9,790
	State	10,700		9,041		6,898
	Non-U.S.	177,788		531,812		124,602
		192,864		425,744		141,290
Deferred:	Federal	(12,612)		(22,791)		(13,000)
	State	(2,773)		(4,205)		(3,335)
	Non-U.S.	3,567		10,409		(13,541)
		(11,818)		(16,587)		(29,876)
Provision for income taxes		$	181,046	$	409,157	$	111,414

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. federal income tax rate of 21% for the years ended June 30, 2022, 2021 and 2020, to pretax income as a result of the following (in thousands):

	2022		2021		2020
Taxes computed at statutory U.S. rate	$	201,701	$	185,569	$	153,949
Increase (decrease) in income taxes resulting from:
State income taxes, net of U.S. tax benefit	5,703		4,836		3,563
Research and development credit	(17,517)		(20,257)		(13,595)
Change in valuation allowance	858		(3,785)		7,216
Effect of non-U.S. tax rates	(4,384)		(12,130)		(20,935)
Foreign tax credits	(2,299)		(7,210)		(4,026)
Stock-based compensation expense	(11,294)		(4,498)		(20,696)
Uncertain tax position	—		248,773		—
Other	8,278		17,859		5,938
Provision for income taxes	$	181,046	$	409,157	$	111,414

We reported net deferred tax assets and liabilities in our consolidated balance sheets at June 30, 2022 and June 30, 2021, as follows (in thousands):

	2022		2021
Non-current deferred tax asset	$	79,746	$	79,904
Non-current deferred tax liability	(9,714)		(11,319)
Net deferred tax asset	$	70,032	$	68,585

The components of our deferred tax assets and liabilities at June 30, 2022 and June 30, 2021, are as follows (in thousands):

	2022		2021
Deferred tax assets:
Employee liabilities	$	28,556	$	30,080
Tax credit carry overs	7,723		13,753
Inventories	10,570		11,734
Provision for warranties	4,814		4,149
Provision for doubtful debts	5,096		7,334
Net operating loss carryforwards	27,490		33,377
Capital loss carryover	4,715		6,912
Stock-based compensation expense	6,425		6,080
Deferred revenue	25,748		17,839
Research and development capitalization	82,074		58,789
Lease liabilities	21,702		25,751
Other	(3,395)		(4,911)
	221,518		210,887
Less valuation allowance	(13,572)		(13,106)
Deferred tax assets	207,946		197,781
Deferred tax liabilities:
Goodwill and other intangibles	(108,078)		(104,563)
Right of use assets	(20,345)		(23,693)
Property, plant and equipment	(9,491)		(940)
Deferred tax liabilities	(137,914)		(129,196)
Net deferred tax asset	$	70,032	$	68,585

As of June 30, 2022, we had $19.8 million of U.S. federal and state net operating loss carryforwards and $6.9 million of non-U.S. net operating loss carryforwards, which expire in various years beginning in 2023 or carry forward indefinitely.

The valuation allowance at June 30, 2022 relates to a provision for uncertainty of the utilization of net operating loss carryforwards of $0.8 million and capital loss and other items of $12.7 million. We believe that it is more likely than not that the benefits of deferred tax assets, net of any valuation allowance, will be realized.

A substantial portion of our manufacturing operations and administrative functions in Singapore operate under certain tax holidays and tax incentive programs that will expire in whole or in part at various dates through June 30, 2030. The end of certain tax holidays may be extended if specific conditions are met. The net impact of these tax holidays and tax incentive programs increased our net income by $38.0 million ($0.26 per diluted share) for the year ended June 30, 2022, $33.6 million ($0.23 per diluted share) for the year ended June 30, 2021, and $43.8 million ($0.30 per diluted share) for the year ended June 30, 2020.

As a result of the Tax Cuts and Jobs Act of 2017 (the ”U.S. Tax Act”), we have treated all non-U.S. historical earnings as taxable. Therefore, future repatriation of cash held by our non-U.S. subsidiaries will generally not be subject to U.S. federal tax if repatriated. The total amount of these undistributed earnings at June 30, 2022 amounted to approximately $3.6 billion. On June 14, 2019, the U.S. Treasury Department issued final and temporary regulations relating to the repatriation of non-U.S. earnings. As a result, in the event our non-U.S. earnings had not been permanently reinvested, approximately $194.9 million in U.S. federal deferred taxes and $5.2 million in U.S. state deferred taxes would have been recognized in the consolidated financial statements.

In accounting for uncertainty in income taxes, we recognize a tax benefit in the financial statements for an uncertain tax position only if management’s assessment is that the position is “more likely than not” (that is, a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term “tax position” refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for annual periods. We recognize interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statements of income. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets. Based on all known facts and circumstances and current tax law, we believe the total amount of unrecognized tax benefits on June 30, 2022, is not material to our results of operations, financial condition or cash flows, and if recognized, would not have a material impact on our effective tax rate.

Our income tax returns are based on calculations and assumptions subject to audit by various tax authorities. In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws. We regularly assess the potential outcomes of examinations by tax authorities in determining the adequacy of our provision for income taxes. Any final assessment resulting from tax audits may result in material changes to our past or future taxable income, tax payable or deferred tax assets, and may require us to pay penalties and interest that could materially adversely affect our financial results.

On September 19, 2021, we concluded the settlement agreement with the Australian Taxation Office (“ATO”) in relation to the previously disclosed transfer pricing dispute for the tax years 2009 through 2018 (“ATO settlement”). The ATO settlement fully resolved the dispute for all prior years, with no admission of liability and provides clarity in relation to certain future taxation principles.

The final net impact of the ATO settlement was $238.7 million, which represents a gross amount of $381.7 million, including interest and penalties of $48.1 million, and adjustments for credits and deductions of $143.0 million. As a result of the ATO settlement and due to movements in foreign currencies, we recorded a benefit of $14.1 million within other comprehensive income, and a $4.1 million reduction of tax credits, which was recorded to income tax expense. As a result of the ATO settlement, we reversed our previously recorded uncertain tax position.

On September 28, 2021, we remitted final payment to the ATO of $284.8 million, consisting of the agreed settlement amount of $381.7 million less prior remittances made to the ATO of $96.9 million.

Tax years 2018 to 2021 remain subject to future examination by the major tax jurisdictions in which we are subject to tax.