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INCOME TAXES | 12 Months Ended
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Jun. 30, 2023
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The provision for income taxes is comprised of the following:
|  | Year Ended June 30
(In millions) |  | 2023 |  | 2022 |  | 2021
Current: |  |  |  |  |  |
Federal |  | $ | 141 |  |  | $ | 219 |  |  | $ | 197 |
Foreign |  | 424 |  |  | 533 |  |  | 479 |
State and local |  | 8 |  |  | 25 |  |  | 10 |
|  | 573 |  |  | 777 |  |  | 686 |
Deferred: |  |  |  |  |  |
Federal |  | (105) |  |  | (12) |  |  | (129) |
Foreign |  | (77) |  |  | (136) |  |  | (100) |
State and local |  | (4) |  |  | (1) |  |  | (1) |
|  | (186) |  |  | (149) |  |  | (230) |
|  | $ | 387 |  |  | $ | 628 |  |  | $ | 456 |
Earnings before income taxes include amounts contributed by the Company’s foreign operations of $1,818 million, $2,248 million and $3,127 million for fiscal 2023, 2022 and 2021, respectively. A portion of these earnings is taxed in the United States. On August 16, 2022, the U.S. federal government enacted the Inflation Reduction Act, with tax provisions primarily focused on implementing a 1% excise tax on share repurchases and a 15% corporate alternative minimum tax based on global adjusted financial statement income. The excise tax was effective beginning with the Company’s third quarter of fiscal 2023 and did not have an impact on the Company’s results of operations or financial position. The corporate alternative minimum tax will be effective beginning with the Company's first quarter of fiscal 2024. The Company continues to monitor developments and evaluate projected impacts, if any, of this provision to its consolidated financial statements. 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, commencing with the Company's 2019 fiscal year. The Company has elected to apply the GILTI high-tax exception beginning with fiscal 2019 through 2022, and intends to make the election for fiscal 2023. 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
|  | 2023 |  | 2022 |  | 2021
Provision for income taxes at statutory rate |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Increase (decrease) due to: |  |  |  |  |  |
State and local income taxes, net of federal tax benefit |  | 0.3 |  |  | 0.7 |  |  | 0.5 |
Stock-based compensation arrangements – excess tax benefits, net |  | (0.8) |  |  | (2.7) |  |  | (3.0) |
Previously held equity method investment gain - DECIEM(1) |  | — |  |  | — |  |  | (5.3) |
GILTI - High-Tax Exception election (adjustment for prior years) |  | — |  |  | — |  |  | (1.4) |
Taxation of foreign operations |  | 8.6 |  |  | 1.4 |  |  | 1.8 |
Income tax reserve adjustments |  | (0.1) |  |  | 0.3 |  |  | (0.2) |
Nondeductible goodwill impairment charges |  | — |  |  | — |  |  | 0.1 |
Other, net |  | (1.3) |  |  | — |  |  | 0.2 |
Effective tax rate(2) |  | 27.7 | % |  | 20.7 | % |  | 13.7 | %
(1)Included in Other income, net in the accompanying consolidated statements of earnings for the fiscal year ended June 30, 2021. (2)For fiscal 2023, 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 decrease in earnings before income taxes from fiscal 2022 to fiscal 2023. 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 $11 million, $82 million and $99 million of excess tax benefits, net as a reduction to the provision for income taxes in the accompanying consolidated statements of earnings for the fiscal year ended June 30, 2023, 2022 and 2021, respectively. The Company has $8,876 million of undistributed earnings of foreign subsidiaries as of June 30, 2023. Included in this amount is $897 million of earnings considered permanently reinvested and for which no deferred income taxes have been provided. If these reinvested earnings were repatriated into the United States as dividends, the Company would be subject to approximately $55 million in taxes, primarily related to foreign withholding taxes as well as additional state and local income taxes. The Company historically had not provided for deferred income taxes on the undistributed earnings of certain foreign subsidiaries as they were considered indefinitely reinvested outside the United States. During the fourth quarter of fiscal 2023, in connection with a planned change in the Company's legal entity structure that exempts foreign withholding tax on certain undistributed earnings, the Company changed its assertion regarding its ability and intent to indefinitely reinvest undistributed earnings of certain foreign subsidiaries and determined that $5,548 million of undistributed earnings of such foreign subsidiaries are no longer considered indefinitely reinvested. The federal, state, local and foreign deferred income tax impact of this change is not material. Significant components of the Company’s deferred income tax assets and liabilities were as follows:
|  | June 30
(In millions) |  | 2023 |  | 2022
Deferred tax assets: |  |  |  |
Compensation-related expenses |  | $ | 189 |  |  | $ | 203 |
Inventory obsolescence and other inventory related reserves |  | 75 |  |  | 59 |
Retirement benefit obligations |  | 60 |  |  | 42 |
Various accruals not currently deductible |  | 225 |  |  | 269 |
Net operating loss, credit and other carryforwards |  | 225 |  |  | 192 |
Unrecognized state tax benefits and accrued interest |  | 12 |  |  | 13 |
Lease liabilities |  | 479 |  |  | 504 |
Research-related expenses |  | 200 |  |  | 121 |
Other differences between tax and financial statement values |  | 107 |  |  | 26 |
|  | 1,572 |  |  | 1,429 |
Valuation allowance for deferred tax assets |  | (200) |  |  | (185) |
Total deferred tax assets |  | 1,372 |  |  | 1,244 |
Deferred tax liabilities: |  |  |  |
Fixed assets and intangibles |  | (264) |  |  | (325) |
ROU assets |  | (432) |  |  | (452) |
Partnership interest in DECIEM |  | (404) |  |  | (431) |
Other differences between tax and financial statement values |  | (32) |  |  | (33) |
Total deferred tax liabilities |  | (1,132) |  |  | (1,241) |
Total net deferred tax assets |  | $ | 240 |  |  | $ | 3 |
As of June 30, 2023, the Company had net deferred tax assets of $240 million, of which $860 million is included in Other assets and $620 million is included in Other noncurrent liabilities in the accompanying consolidated balance sheets. As of June 30, 2022, the Company had net deferred tax assets of $3 million, of which $695 million is included in Other assets and $692 million is included in Other noncurrent liabilities in the accompanying consolidated balance sheets. As of June 30, 2023 and 2022, certain subsidiaries had $528 million and $523 million of foreign net operating loss carryforwards, respectively, the tax effect of which was $143 million and $136 million, respectively, as well as U.S. federal tax credit carryforwards of $79 million and $56 million, respectively. With the exception of $464 million of net operating losses with an indefinite carryforward period as of June 30, 2023, these net operating loss carryforwards expire at various dates through fiscal 2043. The tax credit carryforwards will begin to expire in fiscal 2031. The Company has recorded a valuation allowance of $200 million and $185 million as of June 30, 2023 and 2022, respectively, principally against certain net operating loss carryforwards and tax credit carryforwards. A 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, 2023, 2022 and 2021, the Company had gross unrecognized tax benefits of $63 million, $61 million, and $62 million, respectively. At June 30, 2023, 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 2023, 2022 and 2021 in the accompanying consolidated statements of earnings was $2 million, $4 million and $2 million, respectively. The total gross accrued interest and penalties in the accompanying consolidated balance sheets at June 30, 2023 and 2022 was $15 million and $14 million, respectively. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:
|  | June 30
(In millions) |  | 2023 |  | 2022 |  | 2021
Beginning of the year balance of gross unrecognized tax benefits |  | $ | 61 |  |  | $ | 62 |  |  | $ | 70 |
Gross amounts of increases as a result of tax positions taken during a prior period |  | 9 |  |  | 12 |  |  | 9 |
Gross amounts of decreases as a result of tax positions taken during a prior period |  | (5) |  |  | (6) |  |  | (10) |
Gross amounts of increases as a result of tax positions taken during the current period |  | 4 |  |  | 7 |  |  | 8 |
Amounts of decreases in unrecognized tax benefits relating to settlements with taxing authorities |  | (4) |  |  | (12) |  |  | (13) |
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statutes of limitations |  | (2) |  |  | (2) |  |  | (2) |
End of year balance of gross unrecognized tax benefits |  | $ | 63 |  |  | $ | 61 |  |  | $ | 62 |
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. During the fourth quarter of fiscal 2023, the IRS completed its examination procedures with respect to fiscal 2022 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 2022 during fiscal 2024. As of June 30, 2023, the compliance process was ongoing with respect to fiscal 2023. 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 2023, 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, 2023, 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, 2023, the following tax years remain subject to examination by the major tax jurisdictions indicated:
Major Jurisdiction |  | Open Fiscal Years
Belgium |  | 2019 – 2023
Canada |  | 2019 – 2023
China |  | 2020 – 2023
France |  | 2019 – 2023
Germany |  | 2017 – 2023
Hong Kong |  | 2017 – 2023
Italy |  | 2019 – 2023
Japan |  | 2020 – 2023
Korea |  | 2021 - 2023
Spain |  | 2018 – 2023
Switzerland |  | 2020 – 2023
United Kingdom |  | 2022 – 2023
United States |  | 2022 – 2023
State of California |  | 2018 – 2023
State and City of New York |  | 2018 – 2023
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.

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