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Income Taxes | 12 Months Ended
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Jun. 30, 2015
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES Our effective tax rate represents the net effect of the mix of income earned in various tax jurisdictions that are subject to a wide range of income tax rates. The following is a geographical breakdown of income before the provision for income taxes:
| Year Ended June 30,
| 2015 |  | 2014 |  | 2013
Domestic income | $ | (26,927 | ) |  | $ | (11,623 | ) |  | $ | (20,525 | )
Foreign income | 292,971 |  |  | 288,158 |  |  | 198,735 |
Income before income taxes | $ | 266,044 |  |  | $ | 276,535 |  |  | $ | 178,210 |
The provision for income taxes consisted of the following:
| Year Ended June 30,
| 2015 |  | 2014 |  | 2013
Current income taxes: |  |  |  |  |
Domestic | $ | (839 | ) |  | $ | 1,424 |  |  | $ | 747 |
Foreign | 47,055 |  |  | 69,371 |  |  | 34,739 |
| 46,216 |  |  | 70,795 |  |  | 35,486 |
Deferred income taxes (recoveries): |  |  |  |  |  |  |  |
Domestic | 3,390 |  |  | 5,901 |  |  | 3,126 |
Foreign | (17,968 | ) |  | (18,235 | ) |  | (8,922 | )
| (14,578 | ) |  | (12,334 | ) |  | (5,796 | )
Provision for income taxes | $ | 31,638 |  |  | $ | 58,461 |  |  | $ | 29,690 |
A reconciliation of the combined Canadian federal and provincial income tax rate with our effective income tax rate is as follows:
| Year Ended June 30,
| 2015 |  | 2014 |  | 2013
Expected statutory rate | 26.5 | % |  | 26.5 | % |  | 26.5 | %
Expected provision for income taxes | $ | 70,501 |  |  | $ | 73,282 |  |  | $ | 47,226 |
Effect of foreign tax rate differences | (57,017 | ) |  | (52,577 | ) |  | (27,026 | )
Change in valuation allowance | 6,617 |  |  | 3,281 |  |  | 2,082 |
Amortization of deferred charges | 10,525 |  |  | 11,307 |  |  | 10,922 |
Effect of permanent differences | 1,321 |  |  | 7,643 |  |  | 6,008 |
Effect of changes in unrecognized tax benefits | (1,800 | ) |  | 13,214 |  |  | (13,076 | )
Effect of withholding taxes | 3,045 |  |  | 2,234 |  |  | 2,847 |
Other items | (1,554 | ) |  | 68 |  |  | 8,136 |
Impact of internal reorganization of subsidiaries and integration of acquisitions | — |  |  | 9 |  |  | (7,429 | )
| $ | 31,638 |  |  | $ | 58,461 |  |  | $ | 29,690 |
Substantially all the tax rate differential for international jurisdictions was driven by earnings in Luxembourg. The effective GAAP tax rate (which is the provision for taxes expressed as a percentage of net income before taxes) decreased to 11.9% for Fiscal 2015, from 21.1% for Fiscal 2014. The net change is primarily due to a decrease in the net expense of unrecognized tax benefits with related interest and penalties in the amount of $15.0 million, a decrease of $6.3 million in expenses not deductible for tax purposes in Fiscal 2015 compared to Fiscal 2014 and lower net income, having an impact of $7.2 million. The remainder of the differences are due to normal course movements and non-material items. We have approximately $46.2 million of domestic non-capital loss carryforwards. In addition, we have $648.4 million of foreign non-capital loss carryforwards of which $66.8 million have no expiry date. The remainder of the domestic and foreign losses expires between 2016 and 2035. In addition, investment tax credits of $44.7 million will expire between 2018 and 2035. The primary components of the deferred tax assets and liabilities are as follows, for the periods indicated below:
| June 30,
| 2015 |  | 2014
Deferred tax assets |  |  |
Non-capital loss carryforwards | $ | 223,812 |  |  | $ | 205,576 |
Capital loss carryforwards | 3,470 |  |  | 3,452 |
Undeducted scientific research and development expenses | 80,804 |  |  | 76,743 |
Depreciation and amortization | 25,974 |  |  | 16,441 |
Restructuring costs and other reserves | 17,271 |  |  | 20,889 |
Deferred revenue | 75,067 |  |  | 75,515 |
Other | 47,581 |  |  | 33,993 |
Total deferred tax asset | $ | 473,979 |  |  | $ | 432,609 |
Valuation allowance | $ | (133,459 | ) |  | $ | (108,734 | )
Deferred tax liabilities |  |  |
Scientific research and development tax credits | $ | (6,831 | ) |  | $ | (6,848 | )
Acquired intangibles | (180,457 | ) |  | (165,858 | )
Other | (37,292 | ) |  | (23,133 | )
Deferred tax liabilities | $ | (224,580 | ) |  | $ | (195,839 | )
Net deferred tax asset | $ | 115,940 |  |  | $ | 128,036 |
Comprised of: |  |  |
Current assets | $ | 30,711 |  |  | $ | 28,215 |
Long-term assets | 155,411 |  |  | 161,247 |
Current liabilities | (997 | ) |  | (1,053 | )
Long-term liabilities | (69,185 | ) |  | (60,373 | )
| $ | 115,940 |  |  | $ | 128,036 |
We believe that sufficient uncertainty exists regarding the realization of certain deferred tax assets that a valuation allowance is required. We continue to evaluate our taxable position quarterly and consider factors by taxing jurisdiction, including but not limited to factors such as estimated taxable income, any historical experience of losses for tax purposes and the future growth of OpenText. The aggregate changes in the balance of our gross unrecognized tax benefits (including interest and penalties) were as follows:
Unrecognized tax benefits as of July 1, 2013 | $ | 148,903 |
Increases on account of current year positions | 5,037 |
Increases on account of prior year positions* | 45,266 |
Decreases due to settlements with tax authorities | (2,321 | )
Decreases due to lapses of statutes of limitations | (6,666 | )
Unrecognized tax benefits as of July 1, 2014 | $ | 190,219 |
Increases on account of current year positions | 5,881 |
Increases on account of prior year positions | 1,376 |
Decreases due to settlements with tax authorities | (3,084 | )
Decreases due to lapses of statutes of limitations | (14,143 | )
Unrecognized tax benefits as of June 30, 2015 | $ | 180,249 |
* | Included in these balances as of June 30, 2014 are acquired balances of $17.4 million relating to the acquisition of GXS.
Included in the above tabular reconciliation are unrecognized tax benefits of $25.1 million relating to deferred tax assets in jurisdictions in which these deferred tax assets are offset with valuation allowances. The net unrecognized tax benefit excluding these deferred tax assets is $155.1 million as of June 30, 2015 ($162.6 million as of June 30, 2014). We recognize interest expense and penalties related to income tax matters in income tax expense. For the years ended June 30, 2015, 2014 and 2013, we recognized the following amounts as income tax-related interest expense and penalties:
| Year Ended June 30,
|  | 2015 |  | 2014 |  | 2013
Interest expense (income) |  | $ | 4,451 |  |  | $ | 6,969 |  |  | $ | (736 | )
Penalties expense (recoveries) |  | (2,032 | ) |  | 287 |  |  | 65 |
Total |  | $ | 2,419 |  |  | $ | 7,256 |  |  | $ | (671 | )
As of June 30, 2015 and June 30, 2014, the following amounts have been accrued on account of income tax-related interest expense and penalties:
| As of June 30, 2015 |  | As of June 30, 2014
Interest expense accrued * | $ | 28,827 |  |  | $ | 26,235 |
Penalties accrued * | $ | 5,040 |  |  | $ | 7,858 |
* | These balances have been included within "Long-term income taxes payable" within the Consolidated Balance Sheets.
We believe that it is reasonably possible that the gross unrecognized tax benefits, as of June 30, 2015, could decrease tax expense in the next 12 months by $15.6 million, relating primarily to the expiration of competent authority relief and tax years becoming statute barred for purposes of future tax examinations by local taxing jurisdictions. Our four most significant tax jurisdictions are Canada, the United States, Luxembourg and Germany. Our tax filings remain subject to audits by applicable tax authorities for a certain length of time following the tax year to which those filings relate. For Canada, the United States, Luxembourg and Germany, the earliest fiscal years open for examination are 2008, 2010, 2011 and 2008, respectively. We are subject to tax audits in all major taxing jurisdictions in which we operate and currently have tax audits open in Canada, the United States, France, Spain, Germany, India, and the Netherlands. On a quarterly basis we assess the status of these examinations and the potential for adverse outcomes to determine the adequacy of the provision for income and other taxes. The timing of the resolution of income tax audits is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that within the next 12 months we will receive additional assessments by various tax authorities or possibly reach resolution of income tax audits in one or more jurisdictions. These assessments or settlements may or may not result in changes to our contingencies related to positions on tax filings. The actual amount of any change could vary significantly depending on the ultimate timing and nature of any settlements. We cannot currently provide an estimate of the range of possible outcomes. For more information relating to certain tax audits, please refer to note 13. As at June 30, 2015, we have provided $12.1 million (June 30, 2014—$7.6 million) in respect of both additional foreign withholding taxes or deferred income tax liabilities for temporary differences related to the undistributed earnings of certain non-United States subsidiaries, and planned periodic repatriations from certain United States and Luxembourg subsidiaries, that will be subject to withholding taxes upon distribution. We have not provided for additional foreign withholding taxes or deferred income tax liabilities related to undistributed earnings of all other non-Canadian subsidiaries, since such earnings are considered permanently invested in those subsidiaries, or are not subject to withholding taxes. It is not practicable to reasonably estimate the amount of additional deferred income tax liabilities or foreign withholding taxes that may be payable should these earnings be distributed in the future.

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