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Income Taxes | 12 Months Ended
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Jun. 30, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The following is a summary of our income (loss) before income taxes by geography:
| Year Ended June 30,
| 2018 |  | 2017 |  | 2016
U.S. | $ | 9,183 |  |  | $ | 13,390 |  |  | $ | 23,057 |
Non-U.S. | 57,183 |  |  | (92,707 | ) |  | 43,038 |
Total | $ | 66,366 |  |  | $ | (79,317 | ) |  | $ | 66,095 |
The components of the provision (benefit) for income taxes are as follows:
| Year Ended June 30,
| 2018 |  | 2017 |  | 2016
Current: |  |  |  |  |  |  |  |
U.S. Federal | $ | 446 |  |  | $ | (1,144 | ) |  | $ | 7,915 |
U.S. State | (117 | ) |  | 1,344 |  |  | 116 |
Non-U.S. | 33,065 |  |  | 26,191 |  |  | 23,164 |
Total current | 33,394 |  |  | 26,391 |  |  | 31,195 |
Deferred: |  |  |  |  |  |  |  |
U.S. Federal | (6,673 | ) |  | (1,999 | ) |  | (2,353 | )
U.S. State | 2,306 |  |  | (1,497 | ) |  | 13 |
Non-U.S. | (9,449 | ) |  | (30,013 | ) |  | (13,171 | )
Total deferred | (13,816 | ) |  | (33,509 | ) |  | (15,511 | )
Total | $ | 19,578 |  |  | $ | (7,118 | ) |  | $ | 15,684 |
The following is a reconciliation of the standard U.S. federal statutory tax rate and our effective tax rate:
| Year Ended June 30,
| 2018 |  | 2017 |  | 2016
U.S. federal statutory income tax rate | 28.0 | % |  | 35.0 | % |  | 35.0 | %
State taxes, net of federal effect | (2.4 | ) |  | (0.1 | ) |  | 0.1 |
Tax rate differential on non-U.S. earnings | (1.3 | ) |  | (15.5 | ) |  | (35.7 | )
Goodwill impairment | — |  |  | (1.6 | ) |  | 16.1 |
Gain on sale of subsidiary | 4.0 |  |  | 0.4 |  |  | — |
Compensation related items | (15.1 | ) |  | 7.4 |  |  | (2.2 | )
Change in valuation allowance | 6.7 |  |  | (21.9 | ) |  | 26.9 |
Nondeductible acquisition-related payments | 3.6 |  |  | (18.0 | ) |  | 4.0 |
U.S. tax reform | 10.4 |  |  | — |  |  | — |
Notional interest deduction (Italy) | (1.9 | ) |  | 5.0 |  |  | (5.3 | )
Net tax benefit on intellectual property transfer | — |  |  | 13.8 |  |  | (17.7 | )
Bonus depreciation | (1.9 | ) |  | 0.5 |  |  | — |
Tax on unremitted earnings | 0.7 |  |  | (1.6 | ) |  | 4.6 |
Nondeductible interest expense | 2.9 |  |  | (1.3 | ) |  | 0.2 |
Tax credits and incentives | (4.8 | ) |  | 7.1 |  |  | (4.0 | )
Other | 0.6 |  |  | (0.2 | ) |  | 1.7 |
Effective income tax rate | 29.5 | % |  | 9.0 | % |  | 23.7 | %
For the year ended June 30, 2018, our U.S. federal statutory tax rate was reduced from 35% to 28% as a result of the passage of U.S. tax reform during our second quarter of fiscal year 2018. Our effective tax rate for the year was slightly above our U.S. federal statutory tax rate primarily as a result of one-time tax adjustments described below. Excluding these adjustments, our effective tax rate would have been lower than the U.S. federal statutory tax rate primarily due to 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 tax rate. The jurisdictions that have the most significant impact to our non-U.S. tax provision include Australia, Canada, France, Germany, Ireland, 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, 2018, our effective tax rate was 29.5% as compared to the prior year effective tax rate of 9.0%. The increase in our effective tax rate as compared to the prior year is primarily due to a less favorable geographic mix on increased profits, the unfavorable impact to our deferred tax assets as a result of U.S. tax reform, and the adoption of ASU 2016-16 that is described further below. If we had not adopted ASU 2016-16 in fiscal year 2018, tax expense would have been lower by $8,363. In addition, we recognized a reduction to our deferred tax assets of $4,908 related to expected future changes to our U.S. state apportionment. These impacts were offset by increased share based compensation tax benefits of $12,802 as compared to $8,003 in fiscal 2017. Our fiscal year 2017 effective tax rate was lower than fiscal year 2016 due primarily to a consolidated loss and more favorable geographical mix of earnings in fiscal 2017 as compared to fiscal 2016. In addition, we recorded a larger goodwill impairment charge in fiscal year 2016 as compared to fiscal year 2017, which is non-deductible for tax purposes. This was offset by increased nondeductible acquisition-related charges in fiscal year 2017 as compared to fiscal year 2016. On December 22, 2017, H.R.1, originally known as the Tax Cuts and Jobs Act, ("The Act"), was signed into law, resulting in significant changes to U.S. federal tax law for corporations. Among these changes was the immediate reduction in the federal statutory tax rate from 35% to 21%. The impact of The Act to our fiscal 2018 tax provision was $5,752 of additional tax expense, primarily due to a one-time reduction to our existing U.S. deferred tax assets. In addition, we expect some impact on our future taxes as it relates to certain other aspects of The Act, including limitations on the deductibility of executive share-based compensation awards, U.S. interest expense and meals and entertainment expenses as well as immediate expensing of certain fixed assets. Due to our current operating structure, we expect many of the international aspects of The Act will have little to no effect on our tax balances in the future including, but not limited to, the mandatory one-time deemed repatriation tax on accumulated non-U.S. earnings ("Transition Tax") and the base-erosion anti-avoidance tax on excessive payments to non-U.S. related parties ("BEAT"). In response to The Act, the Securities and Exchange Commission issued Staff Accounting Bulletin 118 ("SAB 118"), to address the application of U.S. GAAP in situations where a company does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of The Act. SAB 118 allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. Our tax balances have been adjusted based upon our interpretation of The Act, although the final impact on our tax balances may change due to the issuance of additional guidance, changes in our interpretation of The Act, changes in assumptions made by Cimpress, and actions Cimpress may take as a result of The Act. There have been no material changes to our tax balances as of June 30, 2018 as a result of changes to our interpretation of nor the issuance of new guidance on The Act. We will continue to review and assess the potential impact of any new information on our financial statement positions. In the first quarter of fiscal year 2018, we elected to early adopt ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory," which requires the immediate recognition for income tax consequences of an intra-entity transfer of assets other than inventory when the transfer occurs. Under the prior accounting rules, any resulting gain or loss and immediate tax impact on an intra-entity transfer is eliminated and not recognized in the consolidated financial statements. Instead, the tax effects are deferred and recognized over the economic lives of the transferred assets. The adoption of ASU 2016-16 has a significant impact to our tax balances, primarily as it relates to transfers of intellectual property from subsidiaries within the Cimpress group to our subsidiary based in Switzerland. Our subsidiary based in Switzerland is entitled to amortize the fair market value of the intellectual property received over five years for Swiss tax purposes. Following the adoption of ASU 2016-16, we eliminated $24,573 of tax assets associated with the deferred tax costs of the transferor entities and recorded $18,710 of deferred tax asset for the unamortized value of intellectual property of our subsidiary in Switzerland, with a cumulative-effect adjustment to retained earnings of $5,863. The intellectual property amortization will reduce our deferred tax asset and will no longer impact our effective tax rate in fiscal 2018 and beyond. The net tax benefit recognized under the prior accounting associated with the amortization of the intellectual property was $12,926 and $12,764 in fiscal years 2017 and 2016, respectively and is included in the line "Net tax benefit on intellectual property transfer" in the above tax rate reconciliation table. In fiscal 2016 we adopted ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvement to Employee Share-Based Payment Accounting." This resulted in tax benefits of $12,802, $8,003 and $3,456 recognized in income tax expense (benefit) in the consolidated statement of operations for the years ended June 30, 2018, 2017 and 2016, respectively, which previously would have been recognized in additional paid-in capital in the consolidated balance sheet. In fiscal 2012, one of our subsidiaries purchased certain intellectual property and intangible assets of Webs, Inc. 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. Refer to Note 17 for additional information regarding this obligation. Significant components of our deferred income tax assets and liabilities consisted of the following at June 30, 2018 and 2017:
| Year Ended June 30,
| 2018 |  | 2017
Deferred tax assets: |  |  |  |  |
Net operating loss carryforwards | $ | 94,925 |  |  | $ | 85,728 |
Depreciation and amortization | 3,211 |  |  | 2,331 |
Accrued expenses | 6,023 |  |  | 6,478 |
Share-based compensation | 17,194 |  |  | 20,999 |
Credit and other carryforwards | 6,649 |  |  | 2,688 |
Derivative financial instruments | 7,552 |  |  | 7,121 |
Other | 3,206 |  |  | 3,060 |
Subtotal | 138,760 |  |  | 128,405 |
Valuation allowance | (58,716 | ) |  | (56,953 | )
Total deferred tax assets | 80,044 |  |  | 71,452 |
Deferred tax liabilities: |  |  |  |  |
Depreciation and amortization | (54,102 | ) |  | (71,477 | )
IP installment obligation | (2,103 | ) |  | (6,460 | )
Tax on unremitted earnings | (4,592 | ) |  | (4,374 | )
Derivative financial instruments | (1,034 | ) |  | — |
Other | (2,369 | ) |  | (1,880 | )
Total deferred tax liabilities | (64,200 | ) |  | (84,191 | )
Net deferred tax assets (liabilities) | $ | 15,844 |  |  | $ | (12,739 | )
In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some 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, and Japan) 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. In addition, we recognized a decrease in our valuation allowance related to the utilization of Dutch net operating losses against the taxable gain from the sale of our Albumprinter business. We have not recorded a valuation allowance against $44,092 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. We have recorded a full valuation allowance against $7,552 of 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 the deferred tax asset 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 on the balance sheet. Additionally, we have recorded a partial valuation allowance of $2,311 against a deferred tax asset related to U.S. state research and development credits for which management has determined that it is more likely than not that these credits will not be utilized within the applicable carryforward periods available under local law. No valuation allowance has been recorded against the $17,194 deferred tax asset associated with share-based compensation charges at June 30, 2018. 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, 2018, 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 on a quarterly basis. A reconciliation of the beginning and ending amount of the valuation allowance for the year ended June 30, 2018 is as follows:
Balance at June 30, 2017 | $ | 56,953 |
Charges to earnings (1) | 3,171 |
Charges to other accounts (2) | (1,408 | )
Balance at June 30, 2018 | $ | 58,716 |
_________________ (1) Amount is primarily related to U.S. state research and development credits and non-U.S. net operating losses. (2) Amount is primarily related to unrealized gains on cross-currency swap contracts included in other comprehensive income (loss) and a decrease in deferred tax assets on non-U.S. net operating losses due to currency exchange rate changes. The increase in net deferred tax assets during fiscal 2018 is primarily attributable to the adoption of ASU 2016-16 and increased tax losses in Switzerland, offset by the impact of U.S. tax reform. As of June 30, 2018, we had gross U.S. federal and state net operating losses of approximately $2,348 that expire on various dates from fiscal 2030 through fiscal 2038. We had gross non-U.S. net operating loss and other carryforwards of $621,297, a significant amount of which begin to expire in fiscal 2021, with the remaining amounts expiring on various dates from fiscal 2019 through fiscal 2038 or with unlimited carryforward. In addition, we have $6,649 of tax credit carryforwards primarily related to U.S. federal and state research and development credits expiring on various dates beginning in fiscal 2030. The benefits of these carryforwards are dependent upon the generation of taxable income in the jurisdictions where they arose. 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, 2018, no tax provision has been made for $29,406 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 $7,000 to $8,000 at that time. A cumulative deferred tax liability of $4,592 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 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 June 30, 2016 | 4,249 |
Additions based on tax positions related to the current tax year | 632 |
Additions based on tax positions related to prior tax years | 1,580 |
Reductions based on tax positions related to prior tax years | (30 | )
Reductions due to audit settlements | (1,048 | )
Balance June 30, 2017 | 5,383 |
Additions based on tax positions related to the current tax year | 612 |
Additions based on tax positions related to prior tax years | 93 |
Reductions based on tax positions related to prior tax years | (261 | )
Reductions due to audit settlements | (31 | )
Reductions due to lapse of statute of limitations | (1,105 | )
Cumulative translation adjustment | 14 |
Balance June 30, 2018 | $ | 4,705 |
For the year ended June 30, 2018, the amount of unrecognized tax benefits (exclusive of interest) that, if recognized, would impact the effective tax rate is $4,442. 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, 2018, 2017 and 2016 were $448, $384 and $142, respectively. It is reasonably possible that a further change in unrecognized tax benefits in the range of $700 to $900 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 2015 through 2017 remain open for examination by the United States Internal Revenue Service (“IRS”) and the years 2012 through 2017 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 certain jurisdictions globally. 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 therefore 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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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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