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INCOME TAXES
 12 Months Ended
Jun. 30, 2025
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The Company’s 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.
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,
202520242023
Expected statutory rate26.50 %26.50 %26.50 %
Expected provision for income taxes$127,749 $193,263 $58,653 
Effect of foreign tax rate differences(9,275)(18,338)(17,502)
Change in valuation allowance (1)
(4,040)71,328 16,218 
Effect of permanent differences24,908 11,864 17,281 
Effect of changes in unrecognized tax benefits (2)
(32,387)(4,570)857 
Effect of withholding taxes7,479 18,680 12,464 
Effect of tax credits (3)
(55,656)(84,244)(45,596)
Effect of accrual for undistributed earnings4,072 (12,421)5,804 
Effect of U.S. BEAT (3)
— 17,927 6,854 
Difference in tax filing positions from provision (4)
(37,053)(2,661)(621)
Impact of internal reorganizations (5)
5,037 59,761 8,822 
Other items15,171 13,423 7,533 
Provision for income taxes$46,005 $264,012 $70,767 
______________________
(1)The decrease in valuation allowance in Fiscal 2025 relates to the recognition of assets previously not recognized as compared to the increase in valuation allowance in Fiscal 2024 due to assets no longer meeting the recognition criteria as a result of the AMC Divestiture.
(2)Fiscal 2025 benefit primarily relates to statute of limitation expirations as compared to Fiscal 2024.
(3)The change in foreign tax credits and U.S. BEAT in Fiscal 2025, compared to Fiscal 2024, is primarily driven by the AMC Divestiture.
(4)The benefit in the current year is related to book to tax filing adjustments for Fiscal 2024 and prior years.
(5)The impact of internal reorganizations in Fiscal 2025 is primarily related to legal entity rationalization activity, as compared to Fiscal 2024 in which significant gains from the AMC Divestiture were recognized.
The following is a geographical breakdown of income before the provision for income taxes:
Year Ended June 30,
202520242023
Domestic income (loss)$248,942 $359,865 $300,437 
Foreign income (loss)233,129 369,431 (79,104)
Income before income taxes$482,071 $729,296 $221,333 
The provision for (recovery of) income taxes consisted of the following:
Year Ended June 30,
202520242023
Current income taxes (recoveries):
Domestic$13,769 $76,571 $15,619 
Foreign170,852 329,712 204,708 
Total current income taxes (recoveries)184,621 406,283 220,327 
Deferred income taxes (recoveries):
Domestic44,974 17,205 17,461 
Foreign(183,590)(159,476)(167,021)
Total deferred income taxes (recoveries)(138,616)(142,271)(149,560)
Provision for income taxes$46,005 $264,012 $70,767 

The primary components of the deferred tax assets and liabilities are as follows, for the periods indicated below:
As of June 30,
20252024
Deferred tax assets
Non-capital loss carryforwards$676,446 $750,895 
Capital loss carryforwards5,833 13,221 
Interest expense carryforwards230,658 217,071 
Capitalized scientific research and development expenses451,163 416,126 
Restructuring costs and other reserves18,678 21,347 
Capitalized inventory and intangible expenses123,010 — 
Tax credits179,343 172,409 
Lease liabilities36,975 36,343 
Deferred revenue22,759 23,362 
Share-based compensation40,464 40,188 
Derivatives73,074 41,978 
Other62,799 88,901 
Total deferred tax asset1,921,202 1,821,841 
Valuation allowance(651,779)(662,694)
Deferred tax liabilities
Depreciation and amortization(247,606)(233,219)
Right of use assets(22,754)(21,173)
Other(60,002)(120,730)
Deferred tax liabilities(330,362)(375,122)
Net deferred tax asset$939,061 $784,025 
Comprised of:
Long-term assets1,080,575 932,657 
Long-term liabilities(141,514)(148,632)
Net deferred tax asset$939,061 $784,025 
As of June 30, 2025, we have $313.3 million of domestic non-capital loss carryforwards. In addition, we have $2.9 billion of foreign non-capital loss carryforwards, which includes $414.6 million of U.S. state loss carryforwards. $425.5 million of the foreign non-capital loss carryforwards have no expiry date, which includes $53.1 million of U.S. state loss carryforwards. The remainder of the domestic and foreign losses expire between 2026 and 2044. In addition, investment tax credits of $88.5 million will expire between 2028 and 2045.
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. As of June 30, 2025 and 2024, the Company had a valuation allowance on its domestic and foreign deferred tax assets of $651.8 million and $662.7 million, respectively. The balance as of June 30, 2025 consisted of $9.8 million and $642.0 million against the Company’s domestic and foreign deferred tax assets, respectively, which, the Company believes, are not more likely than not to be utilized in future years. The valuation allowance decreased in Fiscal 2025 by $10.9 million primarily related to utilization of interest carryovers and expiration of net operating loss carryovers.
The aggregate changes in the balance of our gross unrecognized tax benefits (including interest and penalties) were as follows:
Unrecognized tax benefits as of June 30, 2023
$178,728 
Increases on account of current year positions4,074 
Increases on account of prior year positions
16,558 
Decreases on account of prior year positions(3,338)
Decreases due to settlements with tax authorities(11,497)
Decreases due to lapses of statutes of limitations(4,160)
Unrecognized tax benefits as of June 30, 2024
180,365 
Increases on account of current year positions— 
Increases on account of prior year positions8,024 
Decreases on account of prior year positions(2,612)
Decreases due to settlements with tax authorities(9,569)
Decreases due to lapses of statutes of limitations(36,417)
Unrecognized tax benefits as of June 30, 2025
$139,791 

Included in the above tabular reconciliation are unrecognized tax benefits of $56.0 million as of June 30, 2025 (June 30, 2024—$63.0 million) relating to tax attributes in which the unrecognized tax benefit has been recorded as a reduction to the deferred tax asset. The net unrecognized tax benefit excluding these deferred tax assets is $83.8 million as of June 30, 2025 (June 30, 2024—$117.4 million).
We recognize interest expense and penalties related to income tax matters in income tax expense. For the year ended June 30, 2025, 2024 and 2023, respectively, we recognized the following amounts on uncertain tax positions as income tax-related interest expense and penalties:
Year Ended June 30,
202520242023
Interest expense (income)$(5,290)$7,778 $(1,922)
Penalties expense(2,175)964 (21)
Total$(7,465)$8,742 $(1,943)
The following amounts have been accrued on account of income tax-related interest expense and penalties:
As of June 30, 2025As of June 30, 2024
Interest expense accrued (1)
$14,686 $19,976 
Penalties accrued (1)
$2,121 $4,295 
______________________
(1)These balances are primarily 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, 2025, could decrease tax expense in the next 12 months by $27.3 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.
We are subject to income tax audits in all major taxing jurisdictions in which we operate. Our four most significant tax jurisdictions are Canada, the United States, the United Kingdom 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. We currently have income tax audits open in Canada, the United States, the United Kingdom, Germany and other immaterial jurisdictions. The earliest fiscal years open for examination for our major jurisdictions are 2012 for Canada, 2021 for the United States, 2015 for the United Kingdom and 2016 for Germany. 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 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 income tax audits, refer to Note 14 “Guarantees and Contingencies.”
On July 4, 2025, the One Big Beautiful Bill Act (the OBBBA) was enacted, introducing amendments to U.S. tax laws with various effective dates. Key income tax-related provisions of the OBBBA include provisions related to bonus depreciation, research and development expenditures, interest expense deductibility, and revisions to international tax regimes. The Company is currently assessing the future implications of these tax law changes.
As of June 30, 2025, we have recognized a deferred income tax liability of $20.0 million (June 30, 2024—$15.9 million) on taxable 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.
State Aid Matter
As of June 30, 2024, the Company had a long-term income tax receivable related to the payment it made in regard to a State Aid charging notice it received as a result of the European Commission’s final decision on its State Aid investigation into the UK’s “Financing Company Partial Exemption” legislation where it concluded that part of the legislation was in breach of the EU State Aid rules. Micro Focus, along with the UK government and certain other UK-based international companies, appealed the decision to the General Court of the Court of Justice of the European Union (CJEU).
The CJEU’s judgment was handed down on September 19, 2024. The CJEU broadly followed the Advocate General’s opinion, setting aside the judgment of the General Court and annulling the Commission’s ruling. As a result, a refund of the State Aid charging notice, in the amount of $43.8 million plus interest of $4.0 million, was received in March 2025.