Income Taxes

6 Months Ended

Dec. 31, 2019

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 effective tax rate increased to a provision of 30.3% for the three months ended December 31, 2019, compared to 25.8% for the three months ended December 31, 2018. The increase in tax expense of $10.6 million was primarily due to (i) an increase of $16.8 million relating mainly to a one-time reversal of accruals for repatriations from subsidiaries in the United States in Fiscal 2019 that did not recur in Fiscal 2020, (ii) an increase in tax filings in excess of estimates of $6.0 million and (iii) an increase in net income taxed at foreign rates of $3.3 million. These were partially offset by (i) a decrease of $11.6 million in reserves for unrecognized tax benefits resulting from clarifications provided by tax regulations and taxation years becoming statute barred and (ii) a decrease of $4.5 million related to tax costs of internal reorganizations that did not recur in Fiscal 2020. The remainder of the difference was due to normal course movements and non-material items.

The effective tax rate decreased to a provision of 27.8% for the six months ended December 31, 2019, compared to 31.9% for the six months ended December 31, 2018. Tax expense increased by $3.8 million primarily due to (i) the increase in net income taxed at foreign rates of $11.8 million, (ii) an increase of $14.9 million relating to a one-time reversal of accruals for repatriations from subsidiaries in the United States in Fiscal 2019 that did not recur in Fiscal 2020 and (iii) an increase in tax filing in excess of estimates of $7.3 million. These were partially offset by (i) a decrease of $22.4 million in reserves for unrecognized tax benefit resulting from clarifications provided by tax regulations and taxation years becoming statute barred and (ii) a decrease of $7.9 million relating to the tax impact of internal reorganizations of subsidiaries that did not reoccur Fiscal 2020. The remainder of the difference was due to normal course movements and non-material items.

We recognize interest expense and penalties related to income tax matters in income tax expense. For the three and six months ended December 31, 2019 and 2018, we recognized the following amounts as income tax-related interest expense and penalties:



	Three Months Ended December 31,					Six Months Ended December 31,
	2019			2018		2019		2018
Interest expense (recoveries)	$	2,652		$	1,570	$	1,234	$	4,607
Penalties expense (recoveries)	(156		)	67		75		559
Total	$	2,496		$	1,637	$	1,309	$	5,166

The following amounts have been accrued on account of income tax-related interest expense and penalties:



	As of December 31, 2019		As of June 30, 2019
Interest expense accrued *	$	65,870	$	64,530
Penalties accrued *	$	2,526	$	2,525

* These balances are primarily included within "Long-term income taxes payable" within the Condensed Consolidated Balance Sheets.

We believe that it is reasonably possible that the gross unrecognized tax benefits, as of December 31, 2019, could decrease tax expense in the next 12 months by $7.1 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. The earliest fiscal years open for examination are 2012 for Germany, 2010 for the United States, 2012 for Luxembourg, and 2012 for Canada.

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, Germany, India, and the United Kingdom. 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. Statements regarding the United States and Canada audits are included in note 14 "Guarantees and Contingencies".

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 14 "Guarantees and Contingencies".

As at December 31, 2019, we have recognized a provision of $19.3 million (June 30, 2019—$17.4 million) in respect of both additional foreign 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 German 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.