10. Income Taxes

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act included significant changes to existing tax law, including a reduction to the U.S. federal corporate income tax rate from 35% to 21%, a one-time repatriation tax on deferred foreign income (“Transition Tax”), deductions, credits and business-related exclusions.

The reduction to the U.S. federal corporate income tax rate from 35% to 21% is effective January 1, 2018. When a U.S. federal tax rate change occurs during a fiscal year, taxpayers are required to compute a weighted daily average rate for the fiscal year of enactment. As a result of the Tax Act, we calculated a U.S. federal statutory corporate income tax rate of 28.1% for the year ending June 30, 2018 and applied this rate in computing the second quarter of fiscal year 2018 income tax provision. We expect the U.S. federal statutory rate to be 21% for fiscal years beginning after June 30, 2018.

On December 22, 2017, the SEC issued Staff Accounting Bulletin 118 (“SAB 118”). SAB 118 expresses views of the SEC regarding application of ASC Topic 740, Income Taxes in the reporting period that includes the enactment date of the Tax Act. The SEC staff issuing SAB 118 recognized that a registrant’s review of certain income tax effects of the Tax Act may be incomplete at the time financial statements are issued for the reporting period that includes the enactment date, including interim periods therein. If a company does not have the necessary information available, prepared or analyzed for certain income tax effects of the Tax Act, SAB 118 allows a company to report provisional numbers and adjust those amounts during the measurement period not to extend beyond one year.

Accordingly, our income tax provision as of December 31, 2017 reflects the following discrete provisional items resulting directly from the enactment of the Tax Act.

	Three Months Ended December 31, 2017
Transition Tax	$	64,573
Net impact on U.S. deferred tax assets and liabilities	(8,361		)

Net discrete impacts of the enactment of the Tax Act	$	56,212

Given the Tax Act’s significant changes, we are in the process of evaluating our current assertions with respect to the indefinite reinvestment of foreign earnings. As a result of the Tax Act, we expect to repatriate certain earnings which will be subject to withholding taxes. These additional withholding taxes are being recorded as an additional $15 million deferred tax liability (included in the table above) associated with the basis difference in such jurisdictions. The uncertainty related to the taxation of such withholding taxes on distributions under the Tax Act and finalization of the cash repatriation plan makes the deferred tax liability a provisional amount. Available U.S. net operating loss, foreign tax credits, and research and experimentation credits are expected to significantly offset the Transition Tax on net foreign earnings, which is payable over eight years.

Within the calculation of our annual effective tax rate we have used assumptions and estimates. The changes included in the Tax Act are broad and complex. The final impacts of the Tax Act may differ materially from such estimates due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions arising because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act or any updates or changes to estimates we utilized to calculate such impacts. We will continue to analyze additional information and guidance related to certain aspects of the Tax Act, including the determination of the net deferred tax assets subject to the remeasurement and related impacts to the assessment of valuation allowance. For example, we anticipate that the state jurisdictions will continue to determine and announce their conformity to the Tax Act which could have an impact on the annual effective tax rate.

Our tax returns are subject to audits by U.S. federal, state, and foreign tax authorities, and these audits are at various stages of completion at any given time. Reviews of tax matters by authorities and lapses of the applicable statutes of limitations may result in changes to tax expense. Fiscal years remaining open to examination in significant foreign jurisdictions include 2008 and thereafter.

The determination of the annual effective tax rate is based upon a number of significant estimates and judgments, including the estimated annual pretax income in each tax jurisdiction in which we operate, and the development of tax planning strategies during the year. In addition, as a global commercial enterprise, our tax expense can be impacted by changes in tax rates or laws, such as the Tax Act, the finalization of tax audits and reviews, and other factors that cannot be predicted with certainty. As such, there can be significant volatility in interim tax provisions.