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Income Taxes (Notes) | 12 Months Ended
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Jun. 30, 2016
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The following is a summary of our income before income taxes and loss in equity interests by geography:
| Year Ended June 30,
| 2016 |  | 2015 |  | 2014
U.S. | 23,057 |  |  | 21,567 |  |  | 14,382 |
Non-U.S. | 43,038 |  |  | 78,186 |  |  | 42,228 |
Total | 66,095 |  |  | 99,753 |  |  | 56,610 |
The components of the provision (benefit) for income taxes are as follows:
| Year Ended June 30,
| 2016 |  | 2015 |  | 2014
Current: |  |  |  |  |  |  |  |
U.S. Federal | 7,915 |  |  | 12,680 |  |  | 10,438 |
U.S. State | 116 |  |  | 2,313 |  |  | 3,880 |
Non-U.S. | 23,164 |  |  | 12,496 |  |  | 8,273 |
Total current | 31,195 |  |  | 27,489 |  |  | 22,591 |
Deferred: |  |  |  |  |  |  |  |
U.S. Federal | (2,353 | ) |  | (4,505 | ) |  | (3,754 | )
U.S. State | 13 |  |  | (1,070 | ) |  | (897 | )
Non-U.S. | (13,171 | ) |  | (11,473 | ) |  | (7,350 | )
Total deferred | (15,511 | ) |  | (17,048 | ) |  | (12,001 | )
Total | 15,684 |  |  | 10,441 |  |  | 10,590 |
The following is a reconciliation of the standard U.S. federal statutory tax rate and our effective tax rate:
| Year Ended June 30,
| 2016 |  | 2015 |  | 2014
U.S. federal statutory income tax rate | 35.0 | % |  | 35.0 | % |  | 35.0 | %
State taxes, net of federal effect | 0.1 |  |  | 0.8 |  |  | 3.4 |
Tax rate differential on non-U.S. earnings | (35.7 | ) |  | (23.8 | ) |  | (19.3 | )
Impact of goodwill impairment charge | 16.1 |  |  | — |  |  | — |
Compensation related items | (1.6 | ) |  | 1.1 |  |  | 4.3 |
Increase in valuation allowance | 26.9 |  |  | 8.0 |  |  | 4.8 |
Nondeductible acquisition-related payments | 3.4 |  |  | 3.7 |  |  | 0.3 |
Notional interest deduction (Italy) | (5.3 | ) |  | (2.5 | ) |  | (0.1 | )
Net tax benefit on intellectual property transfer | (17.7 | ) |  | (12.2 | ) |  | (16.4 | )
Nondeductible loss on investment in Namex | — |  |  | — |  |  | 3.8 |
Tax on unremitted earnings | 4.3 |  |  | 0.2 |  |  | — |
Tax credits and incentives | (4.0 | ) |  | (1.7 | ) |  | (1.4 | )
Other | 2.2 |  |  | 1.9 |  |  | 4.3 |
Effective income tax rate | 23.7 | % |  | 10.5 | % |  | 18.7 | %
Our effective tax rate for all periods presented is below the U.S. federal statutory rate of 35% primarily as a result of the majority of our pretax income being earned in jurisdictions outside the U.S. where the applicable tax rates are lower than the U.S. federal statutory rate. The jurisdictions that have the most significant impact to our non-U.S. tax provision include Australia, Canada, France, Germany, Italy, the Netherlands, Spain and Switzerland. The applicable tax rates in these jurisdictions range from 10% - 34%. The total tax rate benefit from operating in non-U.S. jurisdictions is included in the line “Tax rate differential on non-U.S. earnings” in the above tax rate reconciliation table. For the year ended June 30, 2016, our effective tax rate is 23.7% as compared to the prior year effective tax rate of 10.5%. The main causes for this increase are the goodwill impairment charge (discussed in Note 9), which is non-deductible for tax purposes, greater losses incurred in fiscal 2016 as compared to fiscal 2015 in certain jurisdictions where we are unable to recognize a tax benefit, and an increased deferred tax liability on unremitted earnings. In addition, fiscal 2016 had a decrease in consolidated pre-tax income and a less favorable geographical mix of earnings as compared to fiscal 2015. These impacts to the fiscal 2016 effective tax rate are partially offset by share-based compensation tax benefits as a result of the adoption of ASU 2016-09, deferred tax benefits due to future tax rate decreases in various jurisdictions, and a current tax benefit related to the extension of the U.S. federal research and development credit. Additionally, income tax expense in fiscal 2015 was reduced due to a reduction in our net liability for unrecognized tax benefits. In fiscal year 2016 we adopted a new share-based compensation accounting standard, which resulted in a tax benefit of $3,456 recognized as income tax expense in the consolidated statement of operations, which previously would have been recognized in additional paid-in capital in the balance sheet. Refer to Note 2 for additional discussion relating to the new accounting standard. On October 1, 2013, we made changes to our corporate entity operating structure, including transferring our intellectual property among certain of our subsidiaries, primarily to align our corporate entities with our evolving operations and business model. The transfer of assets occurred between wholly owned legal entities within the Cimpress group that are based in different tax jurisdictions. As the impact of the transfer was the result of an intra-entity transaction, any resulting gain or loss and immediate tax impact on the transfer is eliminated and not recognized in the consolidated financial statements under U.S. GAAP. The transferor entity recognized a gain on the transfer of assets that was not subject to income tax in its local jurisdiction. Our subsidiary based in Switzerland was the recipient of the intellectual property. In accordance with Swiss tax law, we are entitled to amortize the fair market value of the intellectual property received at the date of transfer over five years for tax purposes. The tax benefit associated with the amortization of the intellectual property was $12,764 and $13,426 in fiscal years 2016 and 2015, respectively. The impact of this tax benefit to our effective tax rate is included in the line "Net tax (benefit) expense on intellectual property transfer" in the above tax rate reconciliation table. In the year ended June 30, 2012, one of our subsidiaries purchased certain intellectual property and intangible assets of Webs, Inc., and we recognize the tax expense associated with the intra-entity transfer of these assets over a period equal to the expected economic lives of the assets. We elected to fund the transfer of these assets using an installment obligation payable over a 7.5-year period, and accordingly we recorded a deferred tax liability for the entire tax liability owed but not yet paid as of the date of the transaction with a corresponding asset in "Other Assets" to reflect the deferred tax charge to be recognized over the expected remaining lives of the assets. Significant components of our deferred income tax assets and liabilities consist of the following at June 30, 2016 and 2015:
| Year Ended June 30,
| 2016 |  | 2015
Deferred tax assets: |  |  |  |  |
Net operating loss carryforwards | $ | 52,469 |  |  | $ | 31,547 |
Depreciation and amortization | 413 |  |  | 836 |
Accrued expenses | 4,387 |  |  | 4,691 |
Share-based compensation | 17,017 |  |  | 15,580 |
Credit and other carryforwards | 953 |  |  | 114 |
Derivative financial instruments | 2,799 |  |  | 2,396 |
Other | 2,923 |  |  | 1,598 |
Subtotal | 80,961 |  |  | 56,762 |
Valuation allowance | (35,429 | ) |  | (16,612 | )
Total deferred tax assets | 45,532 |  |  | 40,150 |
Deferred tax liabilities: |  |  |  |  |
Depreciation and amortization | (74,804 | ) |  | (54,966 | )
IP installment obligation | (9,608 | ) |  | (13,325 | )
Capital Leases | (30 | ) |  | (1,345 | )
Tax on unremitted earnings | (3,233 | ) |  | (361 | )
Other | (1,193 | ) |  | (471 | )
Total deferred tax liabilities | (88,868 | ) |  | (70,468 | )
Net deferred tax liabilities | $ | (43,336 | ) |  | $ | (30,318 | )
In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The increase in the valuation allowance from the prior year relates primarily to losses incurred in certain jurisdictions (mainly Brazil, China, India, Japan and the Netherlands) for which management has determined, based on current profitability projections, that it is more likely than not that these losses will not be utilized within the applicable carryforward periods available under local law. We have not recorded a valuation allowance against $15,816 of deferred tax asset associated with current and prior year tax losses generated in Switzerland. Management believes there is sufficient positive evidence in the form of historical and future projected profitability to conclude that it is more likely than not that all of the losses in Switzerland will be utilized against future taxable profits within the available carryforward period. Our assessment is reliant on the attainment of our future operating profit goals. Failure to achieve these operating profit goals may change our assessment of this deferred tax asset, and such change would result in an additional valuation allowance and an increase in income tax expense to be recorded in the period of the change in assessment. We will continue to review our forecasts and profitability trends on a quarterly basis. Additionally, we have recorded a full valuation allowance against the $2,799 deferred tax asset related to an interest rate derivative instrument for which management has determined, based on current profitability projections, that it is more likely than not that it will not be recognized in the foreseeable future. The impact of this deferred tax asset and associated valuation allowance has been recorded in accumulated other comprehensive (loss) income on the balance sheet. No valuation allowance has been recorded against the $17,017 deferred tax asset associated with share-based compensation charges at June 30, 2016. However, in the future, if the underlying awards expire, are released or are exercised with an intrinsic value less than the fair value of the awards on the date of grant, some or all of the benefit may not be realizable. Based on the weight of available evidence at June 30, 2016, management believes that it is more likely than not that all other net deferred tax assets will be realized in the foreseeable future. We will continue to assess the realization of the deferred tax assets based on operating results. A reconciliation of the beginning and ending amount of the valuation allowance for the year ended June 30, 2016 is as follows:
Balance at June 30, 2015 | $ | 16,612 |
Charges to earnings (1) | 17,830 |
Charges to other accounts (2) | 987 |
Balance at June 30, 2016 | $ | 35,429 |
_________________ (1) Amount is primarily related to non-U.S. net operating losses. (2) Amount is primarily related to unrealized losses on cross-currency swap contracts included in other comprehensive income (loss) and an increase in deferred tax assets on non-U.S. net operating losses due to currency exchange rate changes. The increase in deferred tax liabilities is primarily attributable to deferred tax liabilities of $26,863 related to intangible and other assets from our fiscal 2016 acquisition of WIRmachenDRUCK. As of June 30, 2016, we had gross U.S. federal and state net operating losses of approximately $8,176 that expire on various dates from fiscal 2030 through fiscal 2035. We had gross non-U.S. net operating loss and other carryforwards of $289,359, a significant amount of which expire in fiscal 2021, with the remaining amounts expiring on various dates from fiscal 2019 through fiscal 2025. The benefits of these carryforwards are dependent upon the generation of taxable income in the jurisdictions where they arose. As of June 30, 2015, we had $28,777 of gross state net operating loss carryforwards and $1,031 of federal and state R&D credit carryforwards as a result of excess tax deductions related to share-based compensation that were tracked off-balance sheet. The tax effect of these carryforwards was $2,334. In fiscal year 2016 we adopted ASU 2016-09, which requires all net operating loss and credit carryforwards generated as a result of excess tax deductions to be recognized on the balance sheet, regardless of when they reduce income taxes payable. We are required to reflect any prior period off-balance sheet adjustments to the balance sheet as of the beginning of our annual period, July 1, 2015, resulting in a cumulative-effect adjustment to retained earnings of $2,334. We consider the following factors, among others, in evaluating our plans for indefinite reinvestment of our subsidiaries’ earnings: (i) the forecasts, budgets and financial requirements of both our parent company and its subsidiaries, both for the long term and for the short term; and (ii) the tax consequences of any decision to reinvest earnings of any subsidiary. As of June 30, 2016, no tax provision has been made for $23,330 of undistributed earnings of certain of our subsidiaries as these earnings are considered indefinitely reinvested. If, in the future, we decide to repatriate the undistributed earnings from these subsidiaries in the form of dividends or otherwise, we could be subject to withholding taxes payable in the range of $6,000 to $7,000 at that time. During the fourth quarter of fiscal 2016, we determined that the undistributed earnings of one of our Canadian subsidiaries can no longer be considered indefinitely reinvested. This change in assertion was made after review of the future funding needs for local capital as compared to the overall capital and operational funding needs of the entire Cimpress organization. A cumulative deferred tax liability of $3,233 has been recorded attributable to undistributed earnings that we have deemed are no longer indefinitely reinvested. The remaining undistributed earnings of our subsidiaries are not deemed to be indefinitely reinvested and can be repatriated at no tax cost. Accordingly, there has been no provision for income or withholding taxes on these earnings. A reconciliation of the gross beginning and ending amount of unrecognized tax benefits is as follows:
Balance at June 30, 2014 | $ | 6,744 |
Additions based on tax positions related to the current tax year | 208 |
Additions based on tax positions related to prior tax years | 73 |
Reductions based on tax positions related to prior tax years | (1,240 | )
Reductions due to audit settlements | (75 | )
Balance at June 30, 2015 | $ | 5,710 |
Additions based on tax positions related to the current tax year | 328 |
Additions based on tax positions related to prior tax years | 132 |
Reductions based on tax positions related to prior tax years | (363 | )
Reductions due to audit settlements | (1,129 | )
Reductions due to lapse of statute of limitations | (429 | )
Balance at June 30, 2016 | $ | 4,249 |
For the years ended June 30, 2016 and 2015, the amount of unrecognized tax benefits (exclusive of interest) that, if recognized, would impact the effective tax rate is $1,893 and $2,383, respectively. We recognize interest and, if applicable, penalties related to unrecognized tax benefits in income tax expense. The accrued interest and penalties recognized as of June 30, 2016 and 2015 were $142 and $110, respectively. It is reasonably possible that a further change in unrecognized tax benefits in the range of $400 to $500 may occur within the next twelve months related to the settlement of one or more audits or the lapse of applicable statutes of limitations. We believe we have appropriately provided for all tax uncertainties. We conduct business in a number of tax jurisdictions and, as such, are required to file income tax returns in multiple jurisdictions globally. The years 2013 through 2015 remain open for examination by the United States Internal Revenue Service (“IRS”) and the years 2011 through 2015 remain open for examination in the various states and non-US tax jurisdictions in which we file tax returns. We are currently under income tax audit in various jurisdictions globally. One of our subsidiaries, Cimpress USA Incorporated, had been under income tax audit by the Massachusetts Department of Revenue ("DOR") and subsequent administrative review by the DOR Office of Appeals for the tax years 2006-2008 and 2010-2011. The matter was formally settled in December 2015, and our accounts were updated, accordingly, to reflect this result. We believe that our income tax reserves are adequately maintained taking into consideration both the technical merits of our tax return positions and ongoing developments in our income tax audits. However, the final determination of our tax return positions, if audited, is uncertain, and there is a possibility that final resolution of these matters could have a material impact on our results of operations or cash flows.

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