XML 256 R17.htm IDEA: XBRL DOCUMENT v3.25.2
INCOME TAXES
 12 Months Ended
Jun. 30, 2025
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The provision for income taxes is comprised of the following:
 
Year Ended June 30,
(In millions)202520242023
Current:   
Federal$149 $185 $141 
Foreign323 426 424 
State and local17 17 8 
Total current provision for income taxes
489 628 573 
Deferred:
Federal(235)(147)(105)
Foreign(146)(111)(77)
State and local(15)(7)(4)
Total deferred benefit for income taxes
(396)(265)(186)
Total provision for income taxes
$93 $363 $387 

(Loss) earnings before income taxes include earnings contributed by the Company’s foreign operations of $773 million, $1,347 million and $1,818 million for fiscal 2025, 2024 and 2023, respectively. A portion of these earnings is taxed in the United States.

On July 4, 2025, new U.S tax legislation was enacted. Known as the One Big Beautiful Bill Act, this legislation includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act ("TCJA"), modifications to the international tax framework and the restoration of certain business tax provisions. The legislation has multiple effective dates, with certain provisions becoming effective in fiscal 2026. The Company is currently evaluating the impact of the new legislation.

On August 16, 2022, the U.S. federal government enacted the Inflation Reduction Act, including a tax provision implementing a 15% corporate alternative minimum tax based on global adjusted financial statement income. The corporate alternative minimum tax did not have an impact on the Company's consolidated financial statements for the years ended June 30, 2025 and June 30, 2024.

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 2024, and intends to make the election for fiscal 2025.

In December 2021, the Organization for Economic Cooperation and Development issued "Pillar Two" Global Anti-Base Erosion model rules for countries to enact into domestic law that would establish a 15% global minimum tax applied on a country-by-country basis for multinational companies. In certain countries that have enacted legislation incorporating the global minimum tax, it became effective for the Company at the beginning of fiscal 2025. The estimated tax impact of such legislation has been included in the provision for income taxes for the fiscal year ended June 30, 2025 and was not material. The Company is continuing to monitor and evaluate the potential impact of newly enacted legislation incorporating the global minimum tax in additional countries.
On August 26, 2024, the U.S. Tax Court issued a decision in Varian Medical Systems, Inc. v. Commissioner. The decision related to the TCJA deduction for certain deemed foreign dividends otherwise subject to the Transition Tax on unrepatriated earnings of applicable foreign subsidiaries. Based on the Company's evaluation of the technical merits of this decision, the Company has filed a protective refund claim with the U.S. Internal Revenue Service in the fiscal 2025 fourth quarter. At this time the Company believes it is more-likely-than-not that such income tax benefit will not be sustained. The Company has accrued a $73 million estimated tax benefit in the provision for income taxes, offset by an uncertain tax position reserve accrual for the estimated $73 million Transition Tax at issue. As a result, there was no net impact to the provision for income taxes and accompanying consolidated statement of (loss) earnings, or to the accompanying consolidated balance sheet for the year ended June 30, 2025.

A reconciliation of the U.S. federal statutory income tax rate to the Company’s actual effective tax rate on (loss) earnings before income taxes is as follows:
Year Ended June 30,
202520242023
Provision for income taxes at statutory rate21.0 %21.0 %21.0 %
Increase (decrease) due to(1):
State and local income taxes, net of federal tax benefit(0.2)1.1 0.3 
Stock-based compensation arrangements – excess tax expense (benefits), net(3.4)3.0 (0.8)
Taxation of foreign operations(10.4)15.9 8.6 
Income tax reserve adjustments0.3 (0.4)(0.1)
Nondeductible goodwill impairment charges(0.1)7.9 — 
U.S. research and development tax credit
1.2 (2.2)(0.9)
Changes in valuation allowance(16.5)— — 
Other, net(0.8)0.7 (0.4)
Effective tax rate(2)
(8.9)%47.0 %27.7 %
(1)In fiscal 2025, as a result of the loss before income taxes, all reconciling items that are income tax expenses are presented as decreases to the rate, and all reconciling items that are income tax benefits are presented as increases to the rate.
(2)For fiscal 2025 and fiscal 2024, 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 2024 to fiscal 2025 and from fiscal 2023 to fiscal 2024, respectively.
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 stock-based compensation awards are recorded as income tax expense or benefit in the consolidated statements of (loss) earnings. The Company recognized $35 million and $23 million of income tax expense for tax deficiencies associated with stock-based compensation for the fiscal years ended June 30, 2025 and 2024, respectively, as compared to $11 million of excess tax benefits, net as a reduction to the provision for income taxes for the fiscal year ended June 30, 2023, in the accompanying consolidated statements of (loss) earnings.
The Company has $4,466 million of undistributed earnings of foreign subsidiaries as of June 30, 2025. Included in this amount is approximately $1,117 million of earnings considered permanently reinvested 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 $77 million in taxes, primarily related to foreign withholding taxes as well as additional state and local income taxes. 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 was not material.
Significant components of the Company’s deferred tax assets and liabilities were as follows:
 
June 30,
(In millions)20252024
Deferred tax assets:  
Compensation-related expenses$201 $198 
Inventory obsolescence and other inventory related reserves101 103 
Retirement benefit obligations45 45 
Various accruals not currently deductible340 228 
Net operating loss, credit and other carryforwards615 405 
Unrecognized state tax benefits and accrued interest11 13 
Lease liabilities511 462 
Research-related expenses276 248 
Other differences between tax and financial statement values120 103 
 2,220 1,805 
Valuation allowance for deferred tax assets(454)(238)
Total deferred tax assets1,766 1,567 
Deferred tax liabilities:
Fixed assets and intangibles(353)(614)
ROU assets(464)(422)
Other differences between tax and financial statement values(36)(32)
Total deferred tax liabilities(853)(1,068)
Total net deferred tax assets$913 $499 

As of June 30, 2025, the Company had net deferred tax assets of $913 million, of which $1,339 million is included in Other assets and $426 million is included in Other noncurrent liabilities in the accompanying consolidated balance sheets. As of June 30, 2024, the Company had net deferred tax assets of $499 million, of which $1,018 million is included in Other assets and $519 million is included in Other noncurrent liabilities in the accompanying consolidated balance sheets.

As of June 30, 2025 and 2024, certain subsidiaries had $972 million and $657 million of foreign net operating loss carryforwards, respectively, the tax effect of which was $213 million and $170 million, respectively, as well as U.S. federal tax credit carryforwards of $172 million and $180 million, respectively, and state and local tax credit carryforwards of $11 million and $8 million, respectively. With the exception of $436 million of net operating losses with an indefinite carryforward period as of June 30, 2025, these net operating loss carryforwards expire at various dates through fiscal 2039. The state and local tax credit carryforwards will begin to expire in fiscal 2029.

The Company has recorded a valuation allowance of $454 million and $238 million as of June 30, 2025 and 2024, 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. During fiscal 2025, the Company established a U.S. valuation allowance of $172 million against general foreign tax credit and research and development tax credit carryforwards as it was determined more-likely-than-not that these deferred tax assets would not be realized. This determination was driven by the Company's weighing of relevant evidence including lower U.S. taxable income in fiscal 2025 as compared to recent years, reflecting reduced income from its travel retail business, and the resulting uncertainty about the ability to realize the carryforwards prior to expiration.

As of June 30, 2025, 2024 and 2023, the Company had gross unrecognized tax benefits of $140 million, $65 million, and $63 million, respectively. At June 30, 2025, the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $133 million. The increase in the gross amount of unrecognized tax benefits as of June 30, 2025 as compared to June 30, 2024 was primarily attributable to having established an uncertain tax position reserve accrual for the Transition Tax at issue based on the August 26, 2024 U.S. Tax Court decision in Varian v. Commissioner, as discussed above.
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 2025, 2024 and 2023 in the accompanying consolidated statements of (loss) earnings was $2 million, $3 million and $2 million, respectively. The total gross accrued interest and penalties in the accompanying consolidated balance sheets at June 30, 2025 and 2024 was $19 million and $17 million, respectively. 

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

 
June 30,
(In millions)202520242023
Balance of gross unrecognized tax benefits, beginning of year
$65 $63 $61 
Gross amounts of increases as a result of tax positions taken during a prior period83 4 9 
Gross amounts of decreases as a result of tax positions taken during a prior period(9)(4)(5)
Gross amounts of increases as a result of tax positions taken during the current period7 5 4 
Amounts of decreases in unrecognized tax benefits relating to settlements with taxing authorities
(2)(1)(4)
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statutes of limitations
(4)(2)(2)
Balance of gross unrecognized tax benefits, end of year
$140 $65 $63 

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 fiscal 2025 second quarter, the Company received notification of the formal conclusion of the compliance process with respect to its fiscal 2023 income tax return under the IRS CAP, which had no impact on the Company’s consolidated financial statements for the year ended June 30, 2025.

Subsequent to June 30, 2025, the IRS completed its examination procedures with respect to fiscal 2024 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 2024 during fiscal 2026. As of June 30, 2025, the compliance process was ongoing with respect to fiscal 2025.

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 2025, 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 as of June 30, 2025, 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, 2025, the following tax years remain subject to examination by the major tax jurisdictions indicated:
Major JurisdictionOpen Fiscal Years
Belgium2019 – 2025
Canada2020 – 2025
China2022 – 2025
France2019 – 2025
Germany2017 – 2025
Hong Kong2019 – 2025
India
2013 – 2018, 2020 – 2025
Italy2020 – 2025
Japan2020 – 2025
Korea2021 – 2025
Spain2018 – 2025
Switzerland2024 – 2025
United Kingdom2024 – 2025
United States2024 – 2025
State of California2020 – 2025
State and City of New York2019 – 2025

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.