XML 33 R22.htm IDEA: XBRL DOCUMENT v3.25.1
INCOME TAXES
 9 Months Ended
Mar. 31, 2025
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The Company’s effective tax rate for the three months ended March 31, 2025, increased to a provision of 10.5%, compared to a provision of 5.8% for the three months ended March 31, 2024.
The Company’s effective tax rate for the nine months ended March 31, 2025, increased to a provision of 13.5%, compared to a provision of 10.1% for the nine months ended March 31, 2024.
The Company’s effective tax rate for the three months ended March 31, 2025 differs from the Canadian statutory rate of 26.5% primarily due to tax benefits related to foreign tax credits, research and development credits, and the effect of foreign rate differences, partially offset by withholding taxes, foreign source income inclusion in the U.S. and a net increase in unrecognized tax benefits.
The Company’s effective tax rate for the three months ended March 31, 2024 differs from the Canadian statutory rate primarily due to tax benefits related to change in valuation allowance, foreign tax credits, and research and development credits, partially offset by U.S. Base Erosion and Anti-Abuse Tax (BEAT), withholding taxes, and an increase to uncertain tax positions.
The Company’s effective tax rate for the nine months ended March 31, 2025 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, partially offset by withholding taxes and foreign source income inclusion in the U.S.
The Company’s effective tax rate for the nine months ended March 31, 2024 differs from the Canadian statutory rate primarily due to tax benefits related to foreign tax credits, research and development credits, and a change in valuation allowance, partially offset by U.S. BEAT and withholding taxes.
As of March 31, 2025, the gross amount of unrecognized tax benefits accrued was $150.6 million (June 30, 2024 — $180.4 million), which is inclusive of interest and penalties accrued of $19.2 million (June 30, 2024 — $24.3 million). We believe that it is reasonably possible that the gross unrecognized tax benefit could decrease by $31.4 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 March 31, 2025, we have recognized a deferred income tax liability of $18.1 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.