XML 69 R16.htm IDEA: XBRL DOCUMENT v3.21.2
INCOME TAXES
 12 Months Ended
Jun. 30, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The provision for income taxes is comprised of the following:
 Year Ended June 30
(In millions)202120202019
Current:   
Federal$197 $128 $180 
Foreign479 368 383 
State and local10 (3)16 
 686 493 579 
Deferred:
Federal(129)(93)(95)
Foreign(100)(49)27 
State and local(1)(1)2 
 (230)(143)(66)
 $456 $350 $513 

Earnings before income taxes include amounts contributed by the Company’s foreign operations of approximately $3,127 million, $2,277 million and $2,021 million for fiscal 2021, 2020 and 2019, respectively. A portion of these earnings is taxed in the United States.

On July 20, 2020, the U.S. government released final and proposed regulations under the global intangible low-taxed income (“GILTI”) provisions of the TCJA that provide for a high-tax exception to the GILTI tax. These regulations are retroactive to the original enactment of the GILTI tax provision, which includes the Company's 2020 and 2019 fiscal years. The Company has elected to apply the GILTI high-tax exception to fiscal 2021, 2020 and 2019.

A reconciliation of the U.S. federal statutory income tax rate to the Company’s actual effective tax rate on earnings before income taxes is as follows:
Year Ended June 30
202120202019
Provision for income taxes at statutory rate21.0 %21.0 %21.0 %
Increase (decrease) due to:
State and local income taxes, net of federal tax benefit0.5 (0.1)0.6 
TCJA net income tax impact— — 0.2 
Stock-based compensation arrangements – excess tax benefits, net(3.0)(7.5)(2.7)
Previously held equity method investment gain - DECIEM(1)
(5.3)— — 
GILTI - High-Tax Exception election (adjustment for prior years)(1.4)— — 
Taxation of foreign operations1.8 11.0 1.9 
Income tax reserve adjustments(0.2)0.4 0.5 
Nondeductible goodwill impairment charges0.1 8.0 0.6 
Other, net0.2 0.7 0.1 
Effective tax rate(2)
13.7 %33.5 %22.2 %
(1)Included in Other income, net in the accompanying consolidated statements of earnings for the fiscal year ended June 30, 2021.
(2)For fiscal 2021 and 2020, the reconciling items between the Company's U.S. federal statutory income tax rate and the Company's actual effective tax rate were materially impacted by the increase from fiscal 2020 to fiscal 2021 and the decrease from fiscal 2019 to fiscal 2020, respectively, in earnings before income taxes.
Income tax reserve adjustments represent changes in the Company’s net liability for unrecognized tax benefits related to prior-year tax positions including the impact of tax settlements and lapses of the applicable statutes of limitations.
All excess tax benefits and tax deficiencies related to share-based compensation awards are recorded as income tax expense or benefit in the consolidated statements of earnings. The Company recognized $99 million, $78 million and $63 million of excess tax benefits, net as a reduction to the provision for income taxes in the accompanying consolidated statements of earnings for twelve months ended June 30, 2021, 2020 and 2019, respectively.
The Company has approximately $6,953 million of undistributed earnings of foreign subsidiaries at June 30, 2021. Included in this amount is approximately $4,595 million of earnings considered permanently reinvested. There may be foreign tax ramifications associated with the distribution of such permanently reinvested earnings, which the Company is currently evaluating. Since the application of the relevant foreign tax laws to such distribution is largely uncertain at this time, it is not practicable to determine the amount of associated tax. Any state income taxes associated with the distribution of such earnings is not expected to be material.
Significant components of the Company’s deferred income tax assets and liabilities were as follows:
 June 30
(In millions)20212020
Deferred tax assets:  
Compensation-related expenses$210 $142 
Inventory obsolescence and other inventory related reserves72 75 
Retirement benefit obligations54 71 
Various accruals not currently deductible239 212 
Net operating loss, credit and other carryforwards169 98 
Unrecognized state tax benefits and accrued interest12 12 
Lease liabilities591 585 
Other differences between tax and financial statement values(1)
249 217 
 1,596 1,412 
Valuation allowance for deferred tax assets(168)(107)
Total deferred tax assets1,428 1,305 
Deferred tax liabilities:
Depreciation and amortization(2)
(504)(563)
ROU assets(517)(504)
Partnership interest in DECIEM(467)— 
Other differences between tax and financial statement values(3)
(158)(194)
Total deferred tax liabilities(1,646)(1,261)
Total net deferred tax assets (liabilities)$(218)$44 
(1)Includes accumulated deferred tax assets as of June 30, 2021 of $175 million associated with goodwill and other intangible asset impairment charges related to the Company's taxable acquisitions.
(2)Includes deferred tax liabilities associated with book-to-tax basis differences related to the Company's taxable and non-taxable acquisitions.
(3)Includes the deferred tax liability of $117 million associated with the fiscal 2020 gain on a previously held equity method investment.
As of June 30, 2021 and 2020, the Company had net deferred tax liabilities of $218 million, substantially all of which are included in Other noncurrent liabilities in the accompanying consolidated balance sheets, and net deferred tax assets of $44 million, substantially all of which are included in Other assets in the accompanying consolidated balance sheets, respectively.

As of June 30, 2021 and 2020, certain subsidiaries had net operating loss and other carryforwards for tax purposes of approximately $531 million and $352 million, respectively. With the exception of approximately $391 million of net operating loss and other carryforwards with an indefinite carryforward period as of June 30, 2021, these carryforwards expire at various dates through fiscal 2033. Deferred tax assets, net of valuation allowances, in the amount of $24 million and $14 million as of June 30, 2021 and 2020, respectively, have been recorded to reflect the tax benefits of the carryforwards not utilized to date.
A full valuation allowance has been provided for those deferred tax assets for which, in the opinion of management, it is more-likely-than-not that the deferred tax assets will not be realized.

As of June 30, 2021, 2020 and 2019, the Company had gross unrecognized tax benefits of $62 million, $70 million, and $67 million, respectively. At June 30, 2021, the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $53 million.

The Company classifies applicable interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes. The total gross accrued interest and penalty expense recorded during fiscal 2021, 2020 and 2019 in the accompanying consolidated statements of earnings was $2 million, $3 million and $4 million, respectively. The total gross accrued interest and penalties in the accompanying consolidated balance sheets at June 30, 2021 and 2020 were $14 million and $13 million, respectively. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

 June 30
(In millions)202120202019
Beginning of the year balance of gross unrecognized tax benefits$70 $67 $60 
Gross amounts of increases as a result of tax positions taken during a prior period9 11 12 
Gross amounts of decreases as a result of tax positions taken during a prior period(10)(9)(6)
Gross amounts of increases as a result of tax positions taken during the current period8 7 9 
Amounts of decreases in unrecognized tax benefits relating to settlements with taxing authorities
(13)(4)(7)
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statutes of limitations
(2)(2)(1)
End of year balance of gross unrecognized tax benefits$62 $70 $67 

Earnings from the Company’s global operations are subject to tax in various jurisdictions both within and outside the United States. The Company participates in the U.S. Internal Revenue Service (the “IRS”) Compliance Assurance Program (“CAP”). The objective of CAP is to reduce taxpayer burden and uncertainty while assuring the IRS of the accuracy of income tax returns prior to filing, thereby reducing or eliminating the need for post-filing examinations.

Subsequent to June 30, 2021, the IRS completed its examination procedures with respect to fiscal 2020 under the IRS CAP. There was no impact to the Company’s consolidated financial statements. The Company expects to receive formal notification of the conclusion of the IRS CAP process for fiscal 2020 during fiscal 2022. As of June 30, 2021, the compliance process was ongoing with respect to fiscal 2021.

The Company is currently undergoing income tax examinations and controversies in several state, local and foreign jurisdictions. These matters are in various stages of completion and involve complex multi-jurisdictional issues common among multinational enterprises, including transfer pricing, which may require an extended period of time for resolution.
During fiscal 2021, the Company concluded various state, local and foreign income tax audits and examinations while several other matters, including those noted above, were initiated or remained pending. On the basis of the information available in this regard as of June 30, 2021, the Company does not expect significant changes to the total amount of unrecognized tax benefits within the next twelve months.
The tax years subject to examination vary depending on the tax jurisdiction. As of June 30, 2021, the following tax years remain subject to examination by the major tax jurisdictions indicated:
Major JurisdictionOpen Fiscal Years
 
Belgium2019 – 2021
Canada2016 – 2021
China2019 – 2021
France2019 – 2021
Germany2017 – 2021
Hong Kong2015 – 2021
Italy2016 – 2021
Japan2020 – 2021
Korea2019 - 2021
Russia2020 – 2021
Spain2016 – 2021
Switzerland2020 – 2021
United Kingdom2020 – 2021
United States2020 – 2021
State of California2014 – 2021
State and City of New York2017 – 2021

The Company is also subject to income tax examinations in numerous other state, local and foreign jurisdictions. The Company believes that its tax reserves are adequate for all years subject to examination.