Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

v3.8.0.1
Income Taxes
 6 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
INCOME TAXES
NOTE 11 – INCOME TAXES
The following table provides details of income taxes:

Three months ended
December 31,
 
Six months ended
December 31,
(Dollar amounts in thousands)
2017
 
2016
 
2017
 
2016
Income before income taxes
$
347,307

 
$
306,845

 
$
683,459

 
$
529,065

Provision for income taxes
$
481,626

 
$
68,594

 
$
536,842

 
$
112,713

Effective tax rate
138.7
%
 
22.4
%
 
78.5
%
 
21.3
%


The Company’s effective tax rate during the three and six months ended December 31, 2017 was impacted by the Tax Cuts and Jobs Act (“the Act”), which was enacted into law on December 22, 2017.  Income tax effects resulting from changes in tax laws are accounted for by the Company in accordance with the authoritative guidance, which requires that these tax effects be recognized in the period in which the law is enacted and the effects are recorded as a component of provision for income taxes from continuing operations. As a result, the Company made an additional provision for income tax resulting from the enactment of the Act during the three and six months ended December 31, 2017.

The Act includes significant changes to the U.S. corporate income tax system which reduces the U.S. federal corporate tax rate from 35.0% to 21.0% as of January 1, 2018; shifts to a modified territorial tax regime which requires companies to pay a transition tax on earnings of certain foreign subsidiaries that were previously tax deferred; and creates new taxes on certain foreign-sourced earnings. The decrease in the U.S. federal corporate tax rate from 35.0% to 21.0% results in a blended statutory tax rate of 28.1% for the fiscal year ending June 30, 2018. The new taxes for certain foreign-sourced earnings under the Act are effective for the Company after the fiscal year ending June 30, 2018.
Provision for income taxes increased by $413.0 million and $424.1 million during the three and six months ended December 31, 2017, respectively, primarily due to: (i) a transition tax of $340.9 million on the Company’s total post-1986 earnings and profits (“E&P”) which, prior to the enactment of the Act, was previously deferred from U.S. income taxes; and (ii) a $101.1 million increase in income tax expense as a result of the re-measurement of the Company’s deferred tax assets and liabilities based on the Act’s new corporate tax rate of 21.0%. The increase in provision for income taxes during the three and six months ended December 31, 2017 was partially offset by a decrease of $25.0 million relating to the reduction of the U.S. federal corporate tax rate from 35.0% to 28.1% for the fiscal year ending June 30, 2018. The amounts resulting from the transition tax are payable over a period of up to eight years.
As of December 31, 2017, the Company had not fully completed its accounting for the tax effects of the enactment of the Act. The Company’s provision for income taxes for the three and six months ended December 31, 2017 is based in part on a reasonable estimate of the effects on its transition tax and existing deferred tax balances. For the amounts which the Company was able to reasonably estimate, the Company recognized a provisional tax amount of $442.0 million, which is included as a component of provision for income taxes from continuing operations. The components of the provisional tax amounts are as follows:
•
The Company recorded a provisional tax amount of $340.9 million for the transition tax liability. The Company has not yet completed the calculation of the total post-1986 foreign E&P and the income tax pools for all foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets. In addition, further interpretations from U.S. federal and state governments and regulatory organizations may change the provisional tax liability or the accounting treatment of the provisional tax liability.
•
The Company recorded a provisional tax amount of $101.1 million to re-measure certain deferred tax assets and liabilities as a result of the enactment of the Act. The Company is still analyzing certain aspects of the Act and refining the estimate of the expected reversal of its deferred tax balances. This can potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.
The Act also includes provisions for Global Intangible Low-Taxed Income (“GILTI”) wherein taxes on foreign income are imposed in excess of a deemed return on tangible assets of foreign corporations. This income will effectively be taxed at a 10.5% tax rate in general. As a result, the Company’s deferred tax assets and liabilities are being evaluated if the deferred tax assets and liabilities should be recognized for the basis differences expected to reverse as a result of GILTI provisions that are effective for the Company after the fiscal year ending June 30, 2018, or should the tax on GILTI provisions be recognized in the period the Act was signed into law. Because of the complexity of the new provisions, the Company is continuing to evaluate on how the provisions will be accounted for under the U.S. generally accepted accounting principles wherein companies are allowed to make an accounting policy election of either (i) account for GILTI as a component of tax expense in the period in which the Company is subject to the rules (the “period cost method”), or (ii) account for GILTI in the Company’s measurement of deferred taxes (the “deferred method”). Currently, the Company has not elected a method and will only do so after its completion of the analysis of the GILTI provisions and its election method will depend, in part, on analyzing its global income to determine whether the Company expects to have future U.S. inclusions in its taxable income related to GILTI and, if so, the impact that is expected.
In the normal course of business, the Company is subject to examination by tax authorities throughout the world. The Company is subject to United States federal income tax examination for all years beginning from the fiscal year ended June 30, 2014. The Company is subject to state income tax examinations for all years beginning from the fiscal year ended June 30, 2013. The Company is also subject to examinations in other major foreign jurisdictions, including Singapore, for all years beginning from the fiscal year ended June 30, 2013.
It is possible that certain examinations may be concluded in the next twelve months. The Company believes that it may recognize up to $12.6 million of its existing unrecognized tax benefits within the next twelve months as a result of the lapse of statutes of limitations and the resolution of examinations with various tax authorities.