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INCOME TAXES | 12 Months Ended
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Jun. 30, 2020
Income Tax Disclosure [Abstract] |
INCOME TAXES | NOTE 12 — INCOME TAXES Tax Cuts and Jobs Act On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted into law, which significantly changed existing U.S. tax law and included numerous provisions that affect our business. We recorded a provisional net charge of $13.7 billion related to the enactment of the TCJA in fiscal year 2018, and adjusted the provisional net charge by recording additional tax expense of $157 million in fiscal year 2019 pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 118. In fiscal year 2019, in response to the TCJA and recently issued regulations, we transferred certain intangible properties held by our foreign subsidiaries to the U.S. and Ireland. The transfers of intangible properties resulted in a $2.6 billion net income tax benefit recorded in the fourth quarter of fiscal year 2019, as the value of future tax deductions exceeded the current tax liability from foreign jurisdictions and U.S. global intangible low-taxed income (“GILTI”) tax. Provision for Income Taxes The components of the provision for income taxes were as follows:
(In millions) |
Year Ended June 30, |  | 2020 |  |  | 2019 |  |  | 2018 |
Current Taxes |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal |  | $ | 3,537 |  |  | $ | 4,718 |  |  | $ | 19,764 |
U.S. state and local |  |  | 763 |  |  |  | 662 |  |  |  | 934 |
Foreign |  |  | 4,444 |  |  |  | 5,531 |  |  |  | 4,348 |
Current taxes |  | $ | 8,744 |  |  | $ | 10,911 |  |  | $ | 25,046 |
Deferred Taxes |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal |  | $ | 58 |  |  | $ | (5,647 | ) |  | $ | (4,292 | )
U.S. state and local |  |  | (6 | ) |  |  | (1,010 | ) |  |  | (458 | )
Foreign |  |  | (41 | ) |  |  | 194 |  |  |  | (393 | )
Deferred taxes |  | $ | 11 |  |  | $ | (6,463 | ) |  | $ | (5,143 | )
Provision for income taxes |  | $ | 8,755 |  |  | $ | 4,448 |  |  | $ | 19,903 |
U.S. and foreign components of income before income taxes were as follows:
(In millions) |
Year Ended June 30, |  | 2020 |  |  | 2019 |  |  | 2018 |
U.S. |  | $ | 24,116 |  |  | $ | 15,799 |  |  | $ | 11,527 |
Foreign |  |  | 28,920 |  |  |  | 27,889 |  |  |  | 24,947 |
Income before income taxes |  | $ | 53,036 |  |  | $ | 43,688 |  |  | $ | 36,474 |
Effective Tax Rate The items accounting for the difference between income taxes computed at the U.S. federal statutory rate and our effective rate were as follows:
Year Ended June 30, |  | 2020 |  |  | 2019 |  |  | 2018 |
Federal statutory rate |  |  | 21.0% |  |  |  | 21.0% |  |  |  | 28.1% |
Effect of: |  |  |  |  |  |  |  |  |  |  |  |
Foreign earnings taxed at lower rates |  |  | (3.7)% |  |  |  | (4.1)% |  |  |  | (7.8)% |
Impact of the enactment of the TCJA |  |  | 0% |  |  |  | 0.4% |  |  |  | 37.7% |
Impact of intangible property transfers |  |  | 0% |  |  |  | (5.9)% |  |  |  | 0% |
Foreign-derived intangible income deduction |  |  | (1.1)% |  |  |  | (1.4)% |  |  |  | 0% |
State income taxes, net of federal benefit |  |  | 1.3% |  |  |  | 0.7% |  |  |  | 1.3% |
Research and development credit |  |  | (1.1)% |  |  |  | (1.1)% |  |  |  | (1.3)% |
Excess tax benefits relating to stock-based compensation |  |  | (2.2)% |  |  |  | (2.2)% |  |  |  | (2.5)% |
Interest, net |  |  | 1.0% |  |  |  | 1.0% |  |  |  | 1.2% |
Other reconciling items, net |  |  | 1.3% |  |  |  | 1.8% |  |  |  | (2.1)% |
Effective rate |  |  | 16.5% |  |  |  | 10.2% |  |  |  | 54.6% |
The decrease from the federal statutory rate in fiscal year 2020 is primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations centers in Ireland and Puerto Rico, and tax benefits relating to stock-based compensation. The decrease from the federal statutory rate in fiscal year 2019 is primarily due to a $2.6 billion net income tax benefit related to intangible property transfers, and earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations centers in Ireland, Singapore, and Puerto Rico. The increase from the federal statutory rate in fiscal year 2018 is primarily due to the net charge related to the enactment of the TCJA in the second quarter of fiscal year 2018, offset in part by earnings taxed at lower rates in foreign jurisdictions. In fiscal year 2020, our foreign regional operating centers in Ireland and Puerto Rico, which are taxed at rates lower than the U.S. rate, generated 86% of our foreign income before tax. In fiscal years 2019 and 2018, our foreign regional operating centers in Ireland, Singapore, and Puerto Rico, which are taxed at rates lower than the U.S. rate, generated 82% and 87% of our foreign income before tax, respectively. Other reconciling items, net consists primarily of tax credits and GILTI tax. In fiscal years 2020, 2019, and 2018, there were no individually significant other reconciling items. The increase in our effective tax rate for fiscal year 2020 compared to fiscal year 2019 was primarily due to a $2.6 billion net income tax benefit in the fourth quarter of fiscal year 2019 related to intangible property transfers. The decrease in our effective tax rate for fiscal year 2019 compared to fiscal year 2018 was primarily due to the net charge related to the enactment of the TCJA in the second quarter of fiscal year 2018, and a $2.6 billion net income tax benefit in the fourth quarter of fiscal year 2019 related to intangible property transfers. The components of the deferred income tax assets and liabilities were as follows:
(In millions) |  |  |  |  |  |
June 30, |  | 2020 |  |  | 2019 |
Deferred Income Tax Assets |  |  |  |  |  |  |  |
Stock-based compensation expense |  | $ | 461 |  |  | $ | 406 |
Accruals, reserves, and other expenses |  |  | 2,721 |  |  |  | 2,287 |
Loss and credit carryforwards |  |  | 865 |  |  |  | 3,518 |
Depreciation and amortization |  |  | 6,361 |  |  |  | 7,046 |
Leasing liabilities |  |  | 3,025 |  |  |  | 1,594 |
Unearned revenue |  |  | 1,553 |  |  |  | 475 |
Other |  |  | 354 |  |  |  | 367 |
Deferred income tax assets |  |  | 15,340 |  |  |  | 15,693 |
Less valuation allowance |  |  | (755 | ) |  |  | (3,214 | )
Deferred income tax assets, net of valuation allowance |  | $ | 14,585 |  |  | $ | 12,479 |
Deferred Income Tax Liabilities |  |  |  |  |  |  |  |
Book/tax basis differences in investments and debt |  | $ | (2,642 | ) |  | $ | (738 | )
Unearned revenue |  |  | 0 |  |  |  | (30 | )
Leasing assets |  |  | (2,817 | ) |  |  | (1,510 | )
Deferred GILTI tax liabilities |  |  | (2,581 | ) |  |  | (2,607 | )
Other |  |  | (344 | ) |  |  | (291 | )
Deferred income tax liabilities |  | $ | (8,384 | ) |  | $ | (5,176 | )
Net deferred income tax assets |  | $ | 6,201 |  |  | $ | 7,303 |
Reported As |  |  |  |  |  |  |  |
Other long-term assets |  | $ | 6,405 |  |  | $ | 7,536 |
Long-term deferred income tax liabilities |  |  | (204 | ) |  |  | (233 | )
Net deferred income tax assets |  | $ | 6,201 |  |  | $ | 7,303 |
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when the taxes are paid or recovered. As of June 30, 2020, we had federal, state, and foreign net operating loss carryforwards of $547 million, $975 million, and $2.0 billion, respectively. The federal and state net operating loss carryforwards will expire in various years from fiscal 2021 through 2040, if not utilized. The majority of our foreign net operating loss carryforwards do not expire. Certain acquired net operating loss carryforwards are subject to an annual limitation, but are expected to be realized with the exception of those which have a valuation allowance. The valuation allowance disclosed in the table above relates to the foreign net operating loss carryforwards and other net deferred tax assets that may not be realized. In fiscal year 2020, we removed $2.0 billion of foreign net operating losses and corresponding valuation allowances as a result of the liquidation of a foreign subsidiary. There was no impact to our consolidated financial statements. Income taxes paid, net of refunds, were $12.5 billion, $8.4 billion, and $5.5 billion in fiscal years 2020, 2019, and 2018, respectively. Uncertain Tax Positions Gross unrecognized tax benefits related to uncertain tax positions as of June 30, 2020, 2019, and 2018, were $13.8 billion, $13.1 billion, and $12.0 billion, respectively, which were primarily included in long-term income taxes in our consolidated balance sheets. If recognized, the resulting tax benefit would affect our effective tax rates for fiscal years 2020, 2019, and 2018 by $12.1 billion, $12.0 billion, and $11.3 billion, respectively. As of June 30, 2020, 2019, and 2018, we had accrued interest expense related to uncertain tax positions of $4.0 billion, $3.4 billion, and $3.0 billion, respectively, net of income tax benefits. The provision for income taxes for fiscal years 2020, 2019, and 2018 included interest expense related to uncertain tax positions of $579 million, $515 million, and $688 million, respectively, net of income tax benefits. The aggregate changes in the gross unrecognized tax benefits related to uncertain tax positions were as follows:
(In millions) |  |  |  |  |  |  |  |  |
Year Ended June 30, |  | 2020 |  |  | 2019 |  |  | 2018 |
Beginning unrecognized tax benefits |  | $ | 13,146 |  |  | $ | 11,961 |  |  | $ | 11,737 |
Decreases related to settlements |  |  | (31 | ) |  |  | (316 | ) |  |  | (193 | )
Increases for tax positions related to the current year |  |  | 647 |  |  |  | 2,106 |  |  |  | 1,445 |
Increases for tax positions related to prior years |  |  | 366 |  |  |  | 508 |  |  |  | 151 |
Decreases for tax positions related to prior years |  |  | (331 | ) |  |  | (1,113 | ) |  |  | (1,176 | )
Decreases due to lapsed statutes of limitations |  |  | (5 | ) |  |  | 0 |  |  |  | (3 | )
Ending unrecognized tax benefits |  | $ | 13,792 |  |  | $ | 13,146 |  |  | $ | 11,961 |
We settled a portion of the Internal Revenue Service (“IRS”) audit for tax years 2004 to 2006 in fiscal year 2011. In February 2012, the IRS withdrew its 2011 Revenue Agents Report related to unresolved issues for tax years 2004 to 2006 and reopened the audit phase of the examination. We also settled a portion of the IRS audit for tax years 2007 to 2009 in fiscal year 2016, and a portion of the IRS audit for tax years 2010 to 2013 in fiscal year 2018. We remain under audit for tax years 2004 to 2013. In April 2020, the IRS commenced the audit for tax years 2014 to 2017. As of June 30, 2020, the primary unresolved issues for the IRS audits relate to transfer pricing, which could have a material impact in our consolidated financial statements when the matters are resolved. We believe our allowances for income tax contingencies are adequate. We have not received a proposed assessment for the unresolved issues and do not expect a final resolution of these issues in the next 12 months. Based on the information currently available, we do not anticipate a significant increase or decrease to our tax contingencies for these issues within the next 12 months. We are subject to income tax in many jurisdictions outside the U.S. Our operations in certain jurisdictions remain subject to examination for tax years 1996 to 2019, some of which are currently under audit by local tax authorities. The resolution of each of these audits is not expected to be material to our consolidated financial statements.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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