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Income Tax Expense | 12 Months Ended
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Jul. 02, 2021
Income Tax Disclosure [Abstract] |
Income Tax Expense | Income Tax Expense Income (loss) Before Taxes The domestic and foreign components of Income (loss) before taxes were as follows:
| 2021 |  | 2020 |  | 2019
| (in millions)
Foreign | $ | 218 |  |  | $ | (695) |  |  | $ | (642) |
Domestic | 709 |  |  | 649 |  |  | 355 |
Income (loss) before taxes | $ | 927 |  |  | $ | (46) |  |  | $ | (287) |
Income Tax Expense (Benefit) The components of the income tax expense (benefit) were as follows:
| 2021 |  | 2020 |  | 2019
| (in millions)
Current: |  |  |  |  |
Foreign | $ | 195 |  |  | $ | 157 |  |  | $ | 181 |
Domestic - Federal | 154 |  |  | 124 |  |  | (91) |
Domestic - State | (1) |  |  | 5 |  |  | 3 |
| 348 |  |  | 286 |  |  | 93 |
Deferred: |  |  |  |  |
Foreign | (20) |  |  | (29) |  |  | 226 |
Domestic - Federal | (208) |  |  | (53) |  |  | 141 |
Domestic - State | (14) |  |  | — |  |  | 7 |
| (242) |  |  | (82) |  |  | 374 |
Income tax expense | $ | 106 |  |  | $ | 204 |  |  | $ | 467 |
The Tax Cuts and Jobs Act (the “2017 Act”), enacted on December 22, 2017, includes a broad range of tax reform proposals affecting businesses. The Company completed its accounting for the tax effects of the enactment of the 2017 Act during the second quarter of fiscal 2019. However, the U.S. Treasury and the IRS have issued tax guidance on certain provisions of the 2017 Act since the enactment date, and the Company anticipates the issuance of additional regulatory and interpretive guidance. The Company applied a reasonable interpretation of the 2017 Act along with the then-available guidance in finalizing its accounting for the tax effects of the 2017 Act. Any additional regulatory or interpretive guidance would constitute new information, which may require further refinements to the Company’s estimates in future periods. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic in the U.S. The CARES Act, among other things, allows net operating losses arising in tax years 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes and increases the business interest expense limitation from 30% to 50% of adjusted taxable income for tax years 2019 and 2020. Additionally, countries around the world implemented emergency tax measures to provide relief similar to the CARES Act. The Company at present does not expect that any of the provisions of the CARES Act or the emergency tax measures around the world would result in a material cash benefit. On December 27, 2020, the Consolidated Appropriations Act (the “Appropriations Act”) was enacted to fund the federal government through their fiscal year, extend certain expiring tax provisions and provide additional emergency relief to individuals and businesses related to the COVID-19 pandemic in the U.S. The Company at present does not expect any of the provisions of the Appropriations Act to have a material impact on its Consolidated Financial Statements. On March 11, 2021, the American Rescue Plan Act of 2021 (the “Rescue Act”) was enacted to provide additional emergency relief to individuals and businesses related to the COVID-19 pandemic in the U.S. The Rescue Act includes certain business-related provisions, which the Company at present does not expect to have a material impact on its Consolidated Financial Statements. The Company continues to monitor and evaluate the regulatory and interpretive guidance related to the CARES Act, the Appropriations Act and the Rescue Act, as well as legislation in other jurisdictions. Deferred Taxes Temporary differences and carryforwards, which give rise to a significant portion of deferred tax assets and liabilities were as follows:
| July 2, 2021 |  | July 3, 2020
| (in millions)
Deferred tax assets: |  |  |
Sales related reserves and accrued expenses not currently deductible | $ | 88 |  |  | $ | 52 |
Accrued compensation and benefits not currently deductible | 143 |  |  | 130 |
Deferred revenue | 128 |  |  | — |
Net operating loss carryforward | 196 |  |  | 251 |
Business credit carryforward | 461 |  |  | 438 |
Long-lived assets | 101 |  |  | 123 |
Other | 131 |  |  | 133 |
Total deferred tax assets | 1,248 |  |  | 1,127 |
Deferred tax liabilities: |  |  |
Long-lived assets | (202) |  |  | (294) |
Unremitted earnings of certain non-U.S. entities | (280) |  |  | (228) |
Other | (20) |  |  | (26) |
Total deferred tax liabilities | (502) |  |  | (548) |
Valuation allowances | (558) |  |  | (624) |
Deferred tax assets (liabilities), net | $ | 188 |  |  | $ | (45) |
The net deferred tax asset valuation allowance decreased by $66 million primarily due to an increase in the deferred tax liability for state taxes on the unremitted earnings of certain non-U.S. entities that would be offset by existing business tax credits carryforwards. The assessment of valuation allowances against deferred tax assets requires estimations and significant judgment. The Company continues to assess and adjust its valuation allowance based on operating results and market conditions. After weighing both the positive and negative evidence available, including, but not limited to, earnings history, projected future outcomes, industry and market trends and the nature of each of the deferred tax assets, the Company determined that it is able to realize most of its deferred tax assets with the exception of certain loss and credit carryforwards. The Company is permanently reinvested with respect to certain foreign earnings. There is no unrecognized deferred tax liability associated with the repatriation of these foreign undistributed earnings as it can be achieved without additional federal tax consequences. Effective Tax Rate Reconciliation of the U.S. Federal statutory rate to the Company’s effective tax rate is as follows:
| 2021 |  | 2020 |  | 2019
U.S. Federal statutory rate | 21 | % |  | 21 | % |  | 21 | %
Tax rate differential on international income | 8 |  |  | (443) |  |  | (75) |
Tax effect of U.S. foreign income inclusion | 5 |  |  | (38) |  |  | (7) |
Tax effect of U.S. foreign minimum tax | 1 |  |  | (235) |  |  | (38) |
Tax effect of U.S. foreign derived intangible income | (14) |  |  | 109 |  |  | 11 |
Tax effect of U.S. non-deductible stock-based compensation | 1 |  |  | (21) |  |  | (1) |
Tax effect of U.S. permanent differences | 1 |  |  | (26) |  |  | (3) |
Impact of 2017 Act: |  |  |  |  |
One-time mandatory deemed repatriation tax | — |  |  | — |  |  | (41) |
Re-measurement of deferred taxes | — |  |  | — |  |  | 2 |
Change in valuation allowance | (7) |  |  | (12) |  |  | (2) |
Unremitted earnings of certain non-U.S. entities | 6 |  |  | (114) |  |  | (79) |
Foreign income tax credits | (5) |  |  | 191 |  |  | 23 |
R&D tax credits | (8) |  |  | 147 |  |  | 24 |
Other | 2 |  |  | (22) |  |  | 2 |
Effective tax rate | 11 | % |  | (443) | % |  | (163) | %
Tax Holidays and Carryforwards A substantial portion of the Company’s manufacturing operations in Malaysia, the Philippines and Thailand operate under various tax holidays and tax incentive programs which expired or will expire in whole or in part at various dates during fiscal years 2021 through 2031. Certain of the holidays may be extended if specific conditions are met. The net impact of these tax holidays and tax incentives was an increase to the Company’s net earnings by $390 million, or $1.26 per diluted share, $464 million, or $1.54 per diluted share, and $393 million, or $1.33 per diluted share, in 2021, 2020, and 2019, respectively. As of July 2, 2021, the Company had varying amounts of federal and state NOL/tax credit carryforwards that do not expire or, if not used, expire in various years. Following is a summary of the Company’s federal and state NOL/tax credit carryforwards and the related expiration dates of these NOL/tax credit carryforwards:
Jurisdiction | NOL/Tax Credit Carryforward Amount |  | Expiration
| (in millions) |  |
Federal NOL (Pre 2017 Act Generation) | $ | 661 |  |  | 2022 to 2038
State NOL | 369 |  |  | 2022 to 2038
Federal tax credits | 56 |  |  | 2022 to 2034
State tax credits | 648 |  |  | No expiration
The federal and state NOLs and credits relating to various acquisitions are subject to limitations under Sections 382 and 383 of the Internal Revenue Code. The Company expects the total amount of federal and state NOLs ultimately realized will be reduced as a result of these provisions by $134 million and $245 million, respectively. The Company expects the total amount of federal and state credits ultimately realized will be reduced as a result of these provisions by $27 million and $2 million, respectively. As of July 2, 2021, the Company had varying amounts of foreign NOL carryforwards that do not expire or, if not used, expire in various years, depending on the country. The major jurisdictions that the Company receives foreign NOL carryforwards and the related amounts and expiration dates of these NOL carryforwards are as follows:
Jurisdiction |  | NOL Carryforward Amount |  | Expiration
|  | (in millions) |  |
Belgium |  | $ | 120 |  |  | No expiration
Japan |  | 111 |  |  | 2024 to 2031
Malaysia |  | 72 |  |  | 2025 to 2027
Spain |  | 51 |  |  | No expiration
Netherlands |  | 12 |  |  | 2025 to 2026
Uncertain Tax Positions With the exception of certain unrecognized tax benefits that are directly associated with the tax position taken, unrecognized tax benefits are presented gross in the Consolidated Balance Sheets. The following is a tabular reconciliation of the total amounts of unrecognized tax benefits excluding accrued interest and penalties:
| 2021 |  | 2020 |  | 2019
| (in millions)
Unrecognized tax benefit, beginning balance | $ | 717 |  |  | $ | 695 |  |  | $ | 551 |
Gross increases related to current year tax positions | 21 |  |  | 11 |  |  | 172 |
Gross increases related to prior year tax positions | 46 |  |  | 35 |  |  | 8 |
Gross decreases related to prior year tax positions | (20) |  |  | (4) |  |  | (24) |
Settlements | (9) |  |  | (12) |  |  | (1) |
Lapse of statute of limitations | (7) |  |  | (8) |  |  | (11) |
Acquisitions | — |  |  | — |  |  | — |
Unrecognized tax benefit, ending balance | $ | 748 |  |  | $ | 717 |  |  | $ | 695 |
Interest and penalties related to unrecognized tax benefits are recognized in liabilities recorded for uncertain tax positions and are recorded in the provision for income taxes. Accrued interest and penalties included in the Company’s liability related to unrecognized tax benefits as of July 2, 2021, July 3, 2020 and June 28, 2019 was $138 million, $137 million and $123 million, respectively. Included within long-term liabilities in the Consolidated Balance Sheets are the Company’s payables related to unrecognized tax benefits, including accrued interest and penalties, of $750 million, $720 million, and $699 million as of July 2, 2021, July 3, 2020 and June 28, 2019, respectively. The entire balance of the gross unrecognized tax benefits as of July 2, 2021, July 3, 2020 and June 28, 2019, if recognized, would affect the effective tax rate. The Company files U.S. Federal, U.S. state and foreign tax returns. For both federal and state tax returns, with few exceptions, the Company is subject to examination for fiscal years 2013 through 2020. The Company is no longer subject to examination by the IRS for periods prior to 2012, although carry forwards generated prior to those periods may still be adjusted upon examination by the IRS or state taxing authority if they either have been or will be used in a subsequent period. In the major foreign jurisdictions where there is no tax holiday, the Company could be subject to examination in China for calendar years 2011 through 2020, in Ireland for calendar year 2015 through fiscal year 2020, in India for fiscal years 2008 through 2020, in Israel for calendar year 2016 through fiscal year 2020 and in Japan for fiscal years 2013 through 2020. As previously disclosed, the IRS issued statutory notices of deficiency with respect to adjustments relating to transfer pricing with the Company’s foreign subsidiaries and intercompany payable balances for fiscal years 2008 through 2009 and fiscal years 2010 through 2012. The Company filed petitions with the U.S. Tax Court with respect to the statutory notices of deficiency for fiscal years 2008 through 2009 and the fiscal years 2010 through 2012. The U.S. Tax Court consolidated the case for fiscal years 2008 through 2009 with the case for fiscal years 2010 through 2012. In May 2020, the IRS filed with the U.S. Tax Court Amendments to Answer to assert penalties totaling $340 million on the proposed adjustments relating to transfer pricing with respect to fiscal years 2008 through 2012. In June 2021, the IRS filed with the U.S. Tax Court Second Amendments to Answer to assert additional adjustments relating to transfer pricing with the Company’s foreign subsidiaries for fiscal years 2008 through 2009 and fiscal years 2010 through 2012. The Second Amendments to Answer replace the amounts asserted in the statutory notices of deficiency. With its Second Amendments to Answer, the IRS seeks to increase the Company’s U.S. taxable income by amounts that would result in additional federal income tax liabilities totaling approximately $335 million for fiscal years 2008 through 2009 and approximately $922 million for fiscal years 2010 through 2012, subject to interest and the IRS’s claim for penalties. In September 2020 and December 2020, the IRS proposed adjustments relating to transfer pricing with the Company’s foreign subsidiaries and intercompany payable balances for fiscal years 2013 through 2015 that, if sustained, would result in additional federal income tax liabilities totaling approximately $343 million for those fiscal years. In March 2021, the IRS asserted penalties totaling $109 million on the proposed adjustments relating to transfer pricing with respect to fiscal years 2013 through 2015. The Company disagrees with the proposed adjustments relating to transfer pricing and related penalties, and continues to believe that its tax positions are properly supported and will vigorously contest the position taken by the IRS. Also in March 2021, the Company and the IRS tentatively reached a basis for resolving the intercompany payable balances matter for all fiscal years at issue and the impact was not material to the Consolidated Financial Statements. The Company believes that adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax examinations cannot be predicted with certainty. If any issues addressed in the Company’s tax examinations are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. As of July 2, 2021, it was not possible to estimate the amount of change, if any, in the unrecognized tax benefits that is reasonably possible within the next twelve months. Any significant change in the amount of the Company’s liability for unrecognized tax benefits would most likely result from additional information or settlements relating to the examination of the Company’s tax returns.

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