Quarterly report pursuant to Section 13 or 15(d)

INCOME TAXES

v3.22.1
INCOME TAXES
 9 Months Ended
Mar. 31, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The following table provides details of income taxes:
Three Months Ended March 31, Nine Months Ended March 31,
(Dollar amounts in thousands) 2022 2021 2022 2021
Income before income taxes $ 846,285 $ 640,403 $ 2,539,538 $ 1,651,611
Provision for income taxes $ 115,625 $ 73,233 $ 22,876 $ 207,316
Effective tax rate 13.7  % 11.4  % 0.9  % 12.6  %
Our effective tax rate is lower than the U.S. federal statutory rate during the three months ended March 31, 2022 primarily due to the proportion of earnings generated in jurisdictions with tax rates lower than the U.S. statutory rate and the proportion of U.S. earnings eligible for the Foreign Derived Intangible Income deduction.
Our effective tax rate is lower than the U.S. federal statutory rate during the nine months ended March 31, 2022 primarily due to a non-recurring tax benefit resulting from the intra-entity transfers of certain intellectual property rights (“IP rights”). During the six months ended December 31, 2021, we completed intra-entity transfers of IP rights to one of our Singapore subsidiaries in order to better align the ownership of these rights with how our business operates. The transfers did not result in taxable gains; however, our Singapore subsidiary recognized deferred tax assets for the book and tax basis difference of the eligible transferred IP rights. As a result of these transactions, we recorded deferred tax assets and related tax benefits of $394.5 million, based on the fair value of the eligible IP rights transferred in September 2021. The tax-deductible amortization related to the eligible transferred IP rights will be recognized over 15 years as allowed under Singapore tax law.
In the normal course of business, we are subject to examination by tax authorities throughout the world. We are subject to U.S. federal income tax examinations for all years beginning from the fiscal year ended June 30, 2018 and are under United States income tax examination for the fiscal years ended June 30, 2018, June 30, 2019 and June 30, 2020. We are subject to state income tax examinations for all years beginning from the fiscal year ended June 30, 2017. We are also subject to examinations in other major foreign jurisdictions, including Singapore and Israel, for all years beginning from the calendar year ended December 31, 2012. We are under audit in Germany related to Orbotech for the calendar years ended December 31, 2013 to December 31, 2015.
It is possible that certain examinations may be concluded in the next 12 months. The timing and resolution of income tax examinations is uncertain. Given the uncertainty around the timing of the resolution of these ongoing examinations, we are unable to estimate the full range of possible adjustments to our unrecognized tax benefits within the next 12 months.
In May 2017, Orbotech received an assessment from the Israel Tax Authority (“ITA”) with respect to its fiscal years 2012 through 2014 (the “Assessment”), for an aggregate amount of tax, after offsetting all net operating losses (“NOL”) available through the end of 2014, of approximately NIS 229 million (equivalent to approximately $66 million which includes related interest and linkage differentials to the Israeli consumer price index as of the date of the issuance of the Tax Decrees, as defined below).
On August 31, 2018, Orbotech filed an objection in respect of the Assessment (the “Objection”). The ITA completed the second stage of the audit, in which the claims Orbotech raised in the Objection were examined by different personnel at the ITA. In addition, the ITA examined additional items during this second stage of the audit. As Orbotech and the ITA did not reach an agreement during the second stage, the ITA issued Tax Decrees to Orbotech on August 28, 2019 (“Tax Decrees”) for an aggregate amount of tax, after offsetting all NOLs available through the end of 2014, of approximately NIS 257 million (equivalent to approximately $73 million which includes related interest and linkage differentials to the Israeli consumer price index as of the date of the issuance of the Tax Decrees). These Tax Decrees replaced the Assessment. We believe that our recorded unrecognized tax benefits are sufficient to cover the resolution of these Tax Decrees.
Orbotech filed a notice of appeal with respect to the above Tax Decrees with the District Court of Tel Aviv on September 26, 2019. On February 27, 2020 the ITA filed its arguments in support of the Tax Decrees. Orbotech filed the grounds of appeal with respect to the above Tax Decrees on July 30, 2020. We are currently in the pre-trial hearing stage of the process. The ITA and Orbotech are continuing discussions in an effort to resolve this matter in a mutually agreeable manner.
In connection with the above, there was an ongoing criminal investigation in Israel against Orbotech, certain of its employees and a tax consultant. On April 11, 2018, Orbotech received a “suspect notification letter” (dated March 28, 2018) from the Tel Aviv District Attorney’s Office (Fiscal and Financial). In the letter, it was noted that the investigation file was transferred from the Assessment Investigation Officer to the District Attorney’s Office. The letter further stated that the District Attorney’s Office has not yet made a decision regarding submission of an indictment against Orbotech; and that if after studying the case, a decision is made to consider prosecuting Orbotech, Orbotech will receive an additional letter and, within 30 days, Orbotech may present its arguments to the District Attorney’s Office as to why it should not be indicted. On October 27, 2019, we received a request for additional information from the District Attorney’s Office. On March 23, 2022, Orbotech received a letter from the Assessment Investigation Officer that the investigation was closed due to lack of evidence. In addition, the Orbotech employees and its tax consultant also received letters in March 2022 noting the investigation against them had been closed.
In December 2020, Orbotech received an assessment from the ITA with respect to its fiscal years 2015 through 2018 (the “Second Assessment”) for an aggregate amount of tax, after offsetting all NOLs available through the end of 2018, of approximately NIS 227 million (equivalent to approximately $68 million which includes related interest and linkage differentials to the Israeli consumer price index as of the date of the issuance of the Second Assessment). We filed an objection to the Second Assessment with the ITA in March 2021. The objection moved the 2015-2018 audit to the second stage, in which the ITA will review the objections. The ITA has completed the second stage review for 2015 and 2016 of the Second Assessment and issued Tax Decrees to Orbotech on March 3, 2022 for 2015-2016 in the amount of approximately NIS 63 million (equivalent to approximately $19 million which includes related interest and linkage differentials to the Israeli consumer price index as of the date of the issuance of the Tax Decrees). These Tax Decrees replaced the Second Assessment for 2015 and 2016. The second stage review for fiscal 2017 and 2018 has not been completed. The Second Assessment for 2017 and 2018 remains at approximately NIS 114 million (equivalent to approximately $34 million which includes related interest and linkage differentials to the Israeli consumer price index as of the date of the issuance of the Second Assessment). We believe that our recorded unrecognized tax benefits are sufficient to cover the resolution of the Second Assessment.