XML 34 R22.htm IDEA: XBRL DOCUMENT v3.25.0.1
INCOME TAXES
 6 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The Company’s effective tax rate for the three months ended December 31, 2024, increased to a provision of 18.1%, compared to a provision of 17.6% for the three months ended December 31, 2023.
The Company’s effective tax rate for the six months ended December 31, 2024, increased to a provision of 14.4%, compared to a provision of 13.4% for the six months ended December 31, 2023.
The Company’s effective tax rate for the three months ended December 31, 2024 differs from the Canadian statutory rate of 26.5% primarily due to tax benefits related to a net decrease in unrecognized tax benefits, foreign tax credits, research and development credits, and a change in valuation allowance, partially offset by disallowed share-based compensation deductions and foreign source income inclusion in the U.S. and Canada.
The Company’s effective tax rate for the three months ended December 31, 2023 differs from the Canadian statutory rate primarily due to tax benefits related to foreign tax credits, research and development credits, partially offset by U.S. Base Erosion and Anti-Abuse Tax (BEAT).
The Company’s effective tax rate for the six months ended December 31, 2024 differs from the Canadian statutory rate of 26.5% primarily due to tax benefits related to a net decrease in unrecognized tax benefits, foreign tax credits, research and development credits, and a change in valuation allowance, partially offset by disallowed share-based compensation deductions and foreign source income inclusion in the U.S. and Canada.
The Company’s effective tax rate for the six months ended December 31, 2023 differs from the Canadian statutory rate primarily due to tax benefits related to foreign tax credits, research and development credits, partially offset by U.S. BEAT.
As of December 31, 2024, the gross amount of unrecognized tax benefits accrued was $148.6 million (June 30, 2024 — $180.4 million), which is inclusive of interest and penalties accrued of $19.1 million (June 30, 2024 — $24.3 million). We believe that it is reasonably possible that the gross unrecognized tax benefit could decrease by $28.6 million in the next 12 months, 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.
As of December 31, 2024, we have recognized a deferred income tax liability of $16.8 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, is expected. The timing of the refund is uncertain as the UK Government must pass legislation by way of regulations to facilitate the refund, but it is reasonably expected to be received within the next twelve months. Given the expected timing of the refund, the income tax recoverable was reclassified to short term and recognized as part of current assets as of December 31, 2024.