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INCOME TAXES | 9 Months Ended
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Mar. 31, 2021
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 effective tax rate increased to a provision of 25.8% for the three months ended March 31, 2021, compared to a provision of 25.5% for the three months ended March 31, 2020. Tax expense increased by $22.9 million from $8.9 million during the three months ended March 31, 2020 to $31.8 million during the three months ended March 31, 2021. This was primarily due to (i) an increase of $23.5 million relating to higher net income including the impact of foreign rates, (ii) an increase of $9.1 million related to the one-time benefit from the US CARES Act in Fiscal 2020 that did not recur in Fiscal 2021, and (iii) an increase of $3.4 million related to differences in tax filings being higher than estimates. These were partially offset by (i) a decrease of $8.9 million related to the US Base Erosion Anti-Abuse Tax (US BEAT), (ii) a decrease of $3.2 million for net changes in unrecognized tax benefits, (iii) a decrease of $2.8 million related to permanent differences, and (iv) a decrease of $1.0 million related to tax benefits of internal reorganizations that occurred in Fiscal 2021. The remainder of the difference was due to normal course movements and non-material items. The effective tax rate increased to a provision of 72.5% for the nine months ended March 31, 2021, compared to a provision of 27.5% for the nine months ended March 31, 2020. Tax expense increased by $263.3 million from $78.8 million during the nine months ended March 31, 2020 to $342.1 million during the nine months ended March 31, 2021. This was primarily due to (i) an increase of $300.6 million relating to the IRS Settlement, (ii) an increase of $47.4 million relating to higher net income including the impact of foreign rates, and (iii) an increase of $9.1 million related to the one-time benefit from the US CARES Act in Fiscal 2020 that did not recur in Fiscal 2021. These were partially offset by (i) a decrease of $70.5 million for net changes in unrecognized tax benefits, primarily from the conclusion of relevant tax audits, (ii) a decrease of $12.4 million related to tax benefits of internal reorganizations that occurred in Fiscal 2021, (iii) a decrease of $6.4 million related to US BEAT, and (iv) a decrease of $4.1 million related to accruals for unrepatriated foreign earnings. 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 nine months ended March 31, 2021 and 2020, respectively, we recognized the following amounts as income tax-related interest expense and penalties:
| Three Months Ended March 31, |  | Nine Months Ended March 31,
| 2021 |  | 2020 |  | 2021 |  | 2020
Interest expense (recoveries) | $ | 1,315 |  |  | $ | 2,814 |  |  | $ | 45,422 |  |  | $ | 4,048 |
Penalties expense (recoveries) | 506 |  |  | 100 |  |  | 889 |  |  | 175 |
Total | $ | 1,821 |  |  | $ | 2,914 |  |  | $ | 46,311 |  |  | $ | 4,223 |
The following amounts have been accrued on account of income tax-related interest expense and penalties:
| As of March 31, 2021 |  | As of June 30, 2020
Interest expense accrued * | $ | 4,937 |  |  | $ | 70,364 |
Penalties accrued * | $ | 2,592 |  |  | $ | 2,620 |
* 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 March 31, 2021, could decrease tax expense in the next 12 months by $1.7 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, 2015 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, Austria, Italy, France, and the Philippines. 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". On December 21, 2020, we entered into a closing agreement with the IRS resolving all of the proposed adjustments to our taxable income for Fiscal 2010 and Fiscal 2012. As a result, we recorded charges of $1.3 million and $300.6 million, respectively, during the three and nine months ended March 31, 2021 to "Provision for (recovery of) income taxes". The IRS Settlement also eliminates approximately $90 million in future withholding taxes that we had expected to incur over the next 10 years. We believe the IRS Settlement to be in the best interest of all stakeholders, as it closes all past, present and future items related to this matter. The IRS Settlement provides finality to this longstanding matter. During the three months ended March 31, 2021, we made payments of $290.0 million associated with the IRS Settlement. As of March 31, 2021, the outstanding settlement amount of approximately $10.6 million is recorded within "Income taxes payable" in our Condensed Consolidated Balance Sheets. Please refer to note 14 "Guarantees and Contingencies" for additional details. As of March 31, 2021, we have recognized a provision of $25.1 million (June 30, 2020—$24.8 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.

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