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INCOME TAXES | 12 Months Ended
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Jun. 30, 2017
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES For financial reporting purposes, the components of income before provision for income taxes were as follows (in thousands):
|  | Years Ended June 30,
|  | 2017 |  | 2016 |  | 2015
Domestic |  | $ | 81,957 |  |  | $ | 60,073 |  |  | $ | 44,743 |
Foreign |  | 203,067 |  |  | 179,867 |  |  | 101,005 |
|  | $ | 285,024 |  |  | $ | 239,940 |  |  | $ | 145,748 |
The components of the Company’s provision for income taxes consisted of the following (in thousands):
|  | Years Ended June 30,
|  | 2017 |  | 2016 |  | 2015
Current |  |  |  |  |  |
Federal |  | $ | 25,533 |  |  | $ | 25,635 |  |  | $ | 15,786 |
State |  | 360 |  |  | (149 | ) |  | 299 |
Foreign |  | 2,563 |  |  | 1,983 |  |  | 909 |
Current tax expense |  | 28,456 |  |  | 27,469 |  |  | 16,994 |
Deferred |  |  |  |  |  |
Federal |  | (858 | ) |  | (1,116 | ) |  | (856 | )
State |  | (80 | ) |  | (29 | ) |  | (53 | )
Foreign |  | — |  |  | — |  |  | — |
Deferred tax expense |  | (938 | ) |  | (1,145 | ) |  | (909 | )
Provision for income taxes |  | $ | 27,518 |  |  | $ | 26,324 |  |  | $ | 16,085 |
The effective tax rate differs from the applicable U.S. statutory federal income tax rate as follows:
|  | Years Ended June 30,
|  | 2017 |  | 2016 |  | 2015
Statutory rate |  | 35.0 | % |  | 35.0 | % |  | 35.0 | %
Tax rate differential, foreign income |  | (23.3 | ) |  | (24.4 | ) |  | (23.2 | )
State tax expense |  | 0.3 |  |  | (0.1 | ) |  | 0.1 |
Stock-based compensation |  | (2.5 | ) |  | 0.3 |  |  | 0.6 |
Federal research and development credits |  | (0.4 | ) |  | (0.6 | ) |  | (1.1 | )
Other permanent items |  | 0.6 |  |  | 0.8 |  |  | (0.4 | )
Effective tax rate |  | 9.7 | % |  | 11.0 | % |  | 11.0 | %
The Company’s effective tax rate decreased 1.3% to 9.7% in fiscal 2017 from 11.0% in fiscal 2016. This decrease is primarily due to the adoption of Accounting Standards Update (“ASU”) 2016-09 that requires companies to record all excess tax benefits and tax deficiencies from stock based compensation as an income tax benefit or expense in the income statement. The Company’s adoption of the new standard resulted in a benefit for excess tax deductions from stock based compensation. Overall, the rate benefit is due to income in foreign jurisdictions that have lower tax rates than the U.S. It is the Company's intention to permanently reinvest the earnings of its foreign subsidiaries. As of June 30, 2017, the Company has not made a provision for U.S. or additional foreign withholding taxes on approximately $811.5 million of the excess of the amount for the financial reporting over the tax basis of its investments in foreign subsidiaries that is indefinitely reinvested outside of U.S. This amount would become subject to U.S. tax upon repatriation. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries. Significant components of the Company’s deferred tax assets and liabilities consisted of the following (in thousands):
|  | June 30,
|  | 2017 |  | 2016
Deferred tax assets |  |  |  |
Reserves and Allowances |  | $ | 2,215 |  |  | $ | 1,539 |
Stock-based compensation |  | 712 |  |  | 998 |
Accrued expenses |  | 371 |  |  | 363 |
Research and development credits |  | — |  |  | 146 |
State tax |  | 1,110 |  |  | 925 |
Other |  | 782 |  |  | 482 |
Total deferred tax assets |  | 5,190 |  |  | 4,453 |
Deferred tax liabilities |  |  |  |
Basis difference for fixed assets |  | (57 | ) |  | (112 | )
Total deferred tax liabilities |  | (57 | ) |  | (112 | )
Valuation allowance |  | — |  |  | (146 | )
Net deferred tax assets |  | $ | 5,133 |  |  | $ | 4,195 |
Prior to fiscal year 2017, the Company had maintained a valuation allowance against California research credit carryover deferred tax asset as the Company had concluded that it was not more likely than not to be realizable in the future. However, in the fiscal year 2017, due to increased profitability, the Company will utilize the remaining research credit carryover. This resulted in the release of the prior valuation allowance and a tax benefit of approximately $0.3 million. A reconciliation of the beginning and ending balances of the unrecognized tax benefits during the years ended June 30, 2017, 2016 and 2015 consists of the following (in thousands):
|  | Years Ended June 30,
|  | 2017 |  | 2016 |  | 2015
|  | (In thousands)
Unrecognized benefit—beginning of year |  | $ | 22,851 |  |  | $ | 19,590 |  |  | $ | 14,914 |
Gross increases—current year tax positions |  | 5,184 |  |  | 3,879 |  |  | 4,960 |
Gross decreases - prior year tax positions due to statute lapse |  | (597 | ) |  | (618 | ) |  | (284 | )
Unrecognized benefit—end of year |  | $ | 27,438 |  |  | $ | 22,851 |  |  | $ | 19,590 |
The gross unrecognized tax benefits balance as of June 30, 2017 is $27.4 million which would affect income tax expense if recognized. The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying Consolidated Statement of Operations and Comprehensive Income. Accrued interest and penalties are included within the related tax liability line in the Consolidated Balance Sheet. As of June 30, 2017, the Company had $2.4 million accrued interest related to uncertain tax matters. The Company believes that it is reasonably possible that a decrease of up to $3.4 million in unrecognized tax benefits may occur due to settlements with tax authorities or statute lapse. The Company files income tax returns in the United States, various states and certain foreign jurisdictions. Tax years 2011 through 2017 are subject to examination by the U.S. federal tax authorities and by certain foreign tax authorities. Tax years 2012 through 2017 are subject to examination by the state tax authorities. On July 27, 2015, in Altera Corp. vs. Commissioner, the U.S. Tax Court issued an opinion related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. On June 27, 2016, the Internal Revenue Service appealed the court's decision to the Ninth Circuit Court of Appeals. On November 10, 2016, the Internal Revenue Service filed its reply brief. We have reviewed this case and its potential impact on Ubiquiti and concluded that no adjustment to the consolidated financial statements is appropriate at this time. We will continue to monitor ongoing developments and potential impacts to our consolidated financial statements. As discussed in Note 2, in fiscal year 2017 the Company early-adopted ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” which the FASB issued in March 2016. The ASU simplifies several aspects of the accounting for employee share-based payment transactions for both public and non-public entities. The amendments related to income taxes include a requirement to recognize all excess tax benefits and tax deficiencies as income tax benefit or expense in the income statement and classification of excess tax benefits in the statement of cash flows as an operating activity. The ASU further eliminates the requirement to defer the recognition of an excess tax benefit until such tax benefit is realized through a reduction to taxes payable.

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
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