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INCOME TAXES | 12 Months Ended
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Jun. 30, 2022
Income Tax Disclosure [Abstract] |
INCOME TAXES | NOTE 12 — INCOME TAXES Provision for Income Taxes The components of the provision for income taxes were as follows:
(In millions) |
Year Ended June 30, |  | 2022 |  |  | 2021 |  |  | 2020 |
Current Taxes |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal |  | $ | 8,329 |  |  | $ | 3,285 |  |  | $ | 3,537 |
U.S. state and local |  |  | 1,679 |  |  |  | 1,229 |  |  |  | 763 |
Foreign |  |  | 6,672 |  |  |  | 5,467 |  |  |  | 4,444 |
Current taxes |  | $ | 16,680 |  |  | $ | 9,981 |  |  | $ | 8,744 |
Deferred Taxes |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal |  | $ | (4,815 | ) |  | $ | 25 |  |  | $ | 58 |
U.S. state and local |  |  | (1,062 | ) |  |  | (204 | ) |  |  | (6 | )
Foreign |  |  | 175 |  |  |  | 29 |  |  |  | (41 | )
Deferred taxes |  | $ | (5,702 | ) |  | $ | (150 | ) |  | $ | 11 |
Provision for income taxes |  | $ | 10,978 |  |  | $ | 9,831 |  |  | $ | 8,755 |
U.S. and foreign components of income before income taxes were as follows:
(In millions) |
Year Ended June 30, |  | 2022 |  |  | 2021 |  |  | 2020 |
U.S. |  | $ | 47,837 |  |  | $ | 34,972 |  |  | $ | 24,116 |
Foreign |  |  | 35,879 |  |  |  | 36,130 |  |  |  | 28,920 |
Income before income taxes |  | $ | 83,716 |  |  | $ | 71,102 |  |  | $ | 53,036 |
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, |  | 2022 |  |  | 2021 |  |  | 2020 |
Federal statutory rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 21.0 | %
Effect of: |  |  |  |  |  |  |  |  |  |  |  |
Foreign earnings taxed at lower rates |  |  | (1.3) | % |  |  | (2.7) | % |  |  | (3.7) | %
Impact of intangible property transfers |  |  | (3.9) | % |  |  | 0 | % |  |  | 0 | %
Foreign-derived intangible income deduction |  |  | (1.1) | % |  |  | (1.3) | % |  |  | (1.1) | %
State income taxes, net of federal benefit |  |  | 1.4 | % |  |  | 1.4 | % |  |  | 1.3 | %
Research and development credit |  |  | (0.9) | % |  |  | (0.9) | % |  |  | (1.1) | %
Excess tax benefits relating to stock-based compensation |  |  | (1.9) | % |  |  | (2.4) | % |  |  | (2.2) | %
Interest, net |  |  | 0.5 | % |  |  | 0.5 | % |  |  | 1.0 | %
Other reconciling items, net |  |  | (0.7) | % |  |  | (1.8) | % |  |  | 1.3 | %
Effective rate |  |  | 13.1 | % |  |  | 13.8 | % |  |  | 16.5 | %
In the first quarter of fiscal year 2022, we transferred certain intangible properties from our Puerto Rico subsidiary to the U.S. The transfer of intangible properties resulted in a $3.3 billion net income tax benefit in the first quarter of fiscal year 2022, as the value of future U.S. tax deductions exceeds the current tax liability from the U.S. global intangible low-taxed income (“GILTI”) tax. We have historically paid India withholding taxes on software sales through distributor withholding and tax audit assessments in India. In March 2021, the India Supreme Court ruled favorably in the case of Engineering Analysis Centre of Excellence Private Limited vs The Commissioner of Income Tax for companies in 86 separate appeals, some dating back to 2012, holding that software sales are not subject to India withholding taxes. Although we were not a party to the appeals, our software sales in India were determined to be not subject to withholding taxes. Therefore, we recorded a net income tax benefit of $620 million in the third quarter of fiscal year 2021 to reflect the results of the India Supreme Court decision impacting fiscal year 1996 through fiscal year 2016. The decrease from the federal statutory rate in fiscal year 2022 is primarily due to the net income tax benefit related to the transfer of intangible properties, earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations center in Ireland, and tax benefits relating to stock-based compensation. The decrease from the federal statutory rate in fiscal year 2021 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, tax benefits relating to stock-based compensation, and tax benefits from the India Supreme Court decision on withholding taxes. 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. In fiscal years 2022, 2021, and 2020, our foreign regional operating centers in Ireland and Puerto Rico, which are taxed at rates lower than the U.S. rate, generated 71%, 82%, and 86% of our foreign income before tax. Other reconciling items, net consists primarily of tax credits and GILTI tax, and in fiscal year 2021, includes tax benefits from the India Supreme Court decision on withholding taxes. In fiscal years 2022, 2021, and 2020, there were no individually significant other reconciling items. The decrease in our effective tax rate for fiscal year 2022 compared to fiscal year 2021 was primarily due to a $3.3 billion net income tax benefit in the first quarter of fiscal year 2022 related to the transfer of intangible properties, offset in part by changes in the mix of our income before income taxes between the U.S. and foreign countries, as well as tax benefits in the prior year from the India Supreme Court decision on withholding taxes, an agreement between the U.S. and India tax authorities related to transfer pricing, and final Tax Cuts and Jobs Act (“TCJA”) regulations. The decrease in our effective tax rate for fiscal year 2021 compared to fiscal year 2020 was primarily due to tax benefits from the India Supreme Court decision on withholding taxes, an agreement between the U.S. and India tax authorities related to transfer pricing, final TCJA regulations, and an increase in tax benefits relating to stock-based compensation. The components of the deferred income tax assets and liabilities were as follows:
(In millions) |  |  |  |  |  |
June 30, |  | 2022 |  |  | 2021 |
Deferred Income Tax Assets |  |  |  |  |  |  |  |
Stock-based compensation expense |  | $ | 601 |  |  | $ | 502 |
Accruals, reserves, and other expenses |  |  | 2,874 |  |  |  | 2,960 |
Loss and credit carryforwards |  |  | 1,546 |  |  |  | 1,090 |
Amortization |  |  | 10,656 |  |  |  | 6,346 |
Leasing liabilities |  |  | 4,557 |  |  |  | 4,060 |
Unearned revenue |  |  | 2,876 |  |  |  | 2,659 |
Other |  |  | 461 |  |  |  | 319 |
Deferred income tax assets |  |  | 23,571 |  |  |  | 17,936 |
Less valuation allowance |  |  | (1,012 | ) |  |  | (769 | )
Deferred income tax assets, net of valuation allowance |  | $ | 22,559 |  |  | $ | 17,167 |
Deferred Income Tax Liabilities |  |  |  |  |  |  |  |
Book/tax basis differences in investments and debt |  | $ | (174 | ) |  | $ | (2,381 | )
Leasing assets |  |  | (4,291 | ) |  |  | (3,834 | )
Depreciation |  |  | (1,602 | ) |  |  | (1,010 | )
Deferred tax on foreign earnings |  |  | (3,104 | ) |  |  | (2,815 | )
Other |  |  | (103 | ) |  |  | (144 | )
Deferred income tax liabilities |  | $ | (9,274 | ) |  | $ | (10,184 | )
Net deferred income tax assets |  | $ | 13,285 |  |  | $ | 6,983 |
Reported As |  |  |  |  |  |  |  |
Other long-term assets |  | $ | 13,515 |  |  | $ | 7,181 |
Long-term deferred income tax liabilities |  |  | (230 | ) |  |  | (198 | )
Net deferred income tax assets |  | $ | 13,285 |  |  | $ | 6,983 |
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, 2022, we had federal, state, and foreign net operating loss carryforwards of $318 million, $1.3 billion, and $2.1 billion, respectively. The federal and state net operating loss carryforwards will expire in various years from fiscal 2023 through 2042, 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. As of June 30, 2022, we had $1.3 billion federal capital loss carryforwards for U.S. tax purposes from our acquisition of Nuance. The federal capital loss carryforwards are subject to an annual limitation and will expire in various years from fiscal 2023 through 2025. The valuation allowance disclosed in the table above relates to the foreign net operating loss carryforwards, federal capital loss carryforwards, and other net deferred tax assets that may not be realized. Income taxes paid, net of refunds, were $16.0 billion, $13.4 billion, and $12.5 billion in fiscal years 2022, 2021, and 2020, respectively. Uncertain Tax Positions Gross unrecognized tax benefits related to uncertain tax positions as of June 30, 2022, 2021, and 2020, were $15.6 billion, $14.6 billion, and $13.8 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 2022, 2021, and 2020 by $13.3 billion, $12.5 billion, and $12.1 billion, respectively. As of June 30, 2022, 2021, and 2020, we had accrued interest expense related to uncertain tax positions of $4.3 billion, $4.3 billion, and $4.0 billion, respectively, net of income tax benefits. The provision for income taxes for fiscal years 2022, 2021, and 2020 included interest expense related to uncertain tax positions of $36 million, $274 million, and $579 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, |  | 2022 |  |  | 2021 |  |  | 2020 |
Beginning unrecognized tax benefits |  | $ | 14,550 |  |  | $ | 13,792 |  |  | $ | 13,146 |
Decreases related to settlements |  |  | (317 | ) |  |  | (195 | ) |  |  | (31 | )
Increases for tax positions related to the current year |  |  | 1,145 |  |  |  | 790 |  |  |  | 647 |
Increases for tax positions related to prior years |  |  | 461 |  |  |  | 461 |  |  |  | 366 |
Decreases for tax positions related to prior years |  |  | (246 | ) |  |  | (297 | ) |  |  | (331 | )
Decreases due to lapsed statutes of limitations |  |  | 0 |  |  |  | (1 | ) |  |  | (5 | )
Ending unrecognized tax benefits |  | $ | 15,593 |  |  | $ | 14,550 |  |  | $ | 13,792 |
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. In the second quarter of fiscal year 2021, we settled an additional portion of the IRS audits for tax years 2004 to 2013 and made a payment of $1.7 billion, including tax and interest. We remain under audit for tax years 2004 to 2017. As of June 30, 2022, 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 key transfer pricing 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 2021, 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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