XML 28 R19.htm IDEA: XBRL DOCUMENT v3.23.3
INCOME TAXES
 3 Months Ended
Sep. 30, 2023
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The Company recorded tax provisions of $19.3 million for the three months ended September 30, 2023 as compared to $18.2 million for the three months ended September 30, 2022. The increased provision for the three months ended September 30, 2023 was primarily related to the increase in estimated effective tax rate due to changes in the mix of the income earned in various tax jurisdictions partially offset by a decrease in the Global Intangible Low-Taxed Income ("GILTI") inclusion for the U.S. taxable income for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022, as well as a release of a reserve for unrecognized tax benefit due to statute of limitation during the three months ended September 30, 2022.

The Company’s estimated fiscal year 2024 effective tax rate, before discrete items, differs from the U.S. statutory rate primarily due to profits earned in jurisdictions where the tax rate is lower than the U.S. tax rate, partially offset by additional U.S. tax related to our non-U.S. operations under GILTI rules.

As of September 30, 2023, the Company had approximately $33.4 million of unrecognized tax benefits, substantially all of which would, if recognized, affect its tax expense. During the three months ended September 30, 2023, the Company recorded an increase of its unrecognized tax benefits of $1.0 million for the quarter ended September 30, 2023. The Company did not release any unrecognized tax benefits for the quarter ended September 30, 2023. 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 sheets. As of September 30, 2023, the Company had $3.6 million accrued interest related to uncertain tax matters.

The Company and one or more of its subsidiaries, file income tax returns in the United States federal jurisdiction, and various state, local, and foreign jurisdictions and is currently undergoing income tax examinations by the U.S. Internal Revenue Service ("IRS") and the Hong Kong IRD. All material consolidated federal, state and local income tax matters have been concluded for years through 2014. The majority of the Company's foreign jurisdictions have been concluded through 2014, with the exception of Hong Kong which has been reviewed through 2009 and is currently under audit for the 2010-2017 tax years.

In July 2018, the Company received a draft Notice of Proposed Adjustment (“Draft NOPA”) from the IRS proposing an adjustment to income for the fiscal 2015 and fiscal 2016 tax years based on its interpretation of certain obligations of the non-US entities under the 2015 and 2016 credit facility. This Draft NOPA was superseded by an Acknowledgement of Facts (“AOF”) issued to the Company by the IRS on January 17, 2020. The IRS in its AOF continued to propose an adjustment to the Company’s income for its fiscal 2015 and fiscal 2016 tax years based on the IRS’ interpretation of certain obligations of the Company’s foreign subsidiaries under the Company’s credit facilities. On May 12, 2020, the IRS issued a final Notice of Proposed Adjustment to the Company with respect to the 2015/2016 tax years. The Company formally protested the adjustment and the case was moved from the Examination Division to the IRS Appeals Division where a formal review of the facts and the applicable law took place on May 9, 2022. The Appeals Officer issued a Notice of Deficiency on August 3, 2022, which upheld the position of the Examination Division. The Company filed a petition with the United States Tax Court seeking to have the Notice of Deficiency reversed. The Company strongly believes the position of the IRS with regard to this matter is without merit. However, there can be no assurance that this matter will be resolved in the Company’s favor. Regardless of whether the matter is resolved in the Company’s favor, the final resolution of this matter could be expensive and time-consuming to defend and/or settle. We estimate the incremental tax liability associated with the income adjustment proposed in the AOF would be approximately $50.0 million, excluding potential interest and penalties, after adjusting for the impact of an adjustment on the amount of the transition tax on accumulated foreign earnings from the 2017 Tax Cuts and Jobs Act. As the Company believes that the tax originally paid in fiscal 2015 and fiscal 2016 is correct and that this matter will more likely than not be sustained based on its technical merits, it has not provided a reserve for this tax uncertainty. However, an adverse outcome may have a material and adverse effect on the Company’s results of operations and financial condition.

During fiscal years 2022, 2021, 2020, 2019, and 2018, the Company made a total of $3.0 million, $21.9 million, $15.5 million, $13.4 million, and $6.6 million, respectively, of deposits with the Hong Kong IRD in connection with extending the statute of limitation for income tax examinations currently under audit for 2010-2016 tax years. On March 30, 2023, the Company received notification that the Hong Kong IRD is seeking an additional $0.3 million deposit covering the 2017 tax year. The Company filed a formal protest in response to this notice and the Assessor's office agreed to a reduced deposit of under $0.1 million, which was remitted on May 18, 2023. The refundable deposits are included within other long-term assets on our Consolidated Balance Sheets. The IRD is examining the Company’s claims that its revenue is generated through activities performed wholly outside of the Hong Kong tax jurisdiction and are therefore exempt from Hong Kong tax. The Company is fully cooperating with the examination including submitting documentation in support of its position. The Company continues to believe that its tax positions filed with IRD are more likely than not to be sustained based on their technical merits and therefore no reserve has been provided for this tax uncertainty and we expect the $60.1 million (net of foreign currency impact) of deposits made with IRD to be refunded upon completion of the audit. However,
there can be no assurance that this matter will be resolved in the Company’s favor and therefore it's possible that an adverse outcome of the matter could have a material effect on the Company’s results of operations and financial condition.