Income Tax Expense

12 Months Ended

Jun. 30, 2023

Income Tax Disclosure [Abstract]

Income Tax Expense

Income Tax Expense

Income (loss) Before Taxes

The domestic and foreign components of Income (loss) before taxes were as follows:

	2023		2022		2021
	(in millions)
Foreign	$	(2,029)	$	1,384	$	218
Domestic	469		739		709
Income (loss) before taxes	$	(1,560)	$	2,123	$	927

Income Tax Expense

The components of the income tax expense were as follows:

	2023		2022		2021
	(in millions)
Current:
Foreign	$	153	$	143	$	195
Domestic - Federal	33		341		154
Domestic - State	(6)		25		(1)
	180		509		348
Deferred:
Foreign	8		27		(20)
Domestic - Federal	(36)		84		(208)
Domestic - State	(6)		3		(14)
	(34)		114		(242)
Income tax expense	$	146	$	623	$	106

The Tax Cuts and Jobs Act (the “2017 Act”), enacted on December 22, 2017, includes a broad range of tax reform proposals affecting businesses. The Company completed its accounting for the tax effects of the enactment of the 2017 Act during the second quarter of 2019. However, the U.S. Treasury and the Internal Revenue Services (“IRS”) have issued tax guidance on certain provisions of the 2017 Act since the enactment date, and the Company anticipates the issuance of additional regulatory and interpretive guidance. The Company applied a reasonable interpretation of the 2017 Act along with the then-available guidance in finalizing its accounting for the tax effects of the 2017 Act. Any additional regulatory or interpretive guidance would constitute new information, which may require further refinements to the Company’s estimates in future periods.

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which contained significant law changes related to tax, climate, energy, and health care. The tax measures include, among other things, a corporate alternative minimum tax (“CAMT”) of 15% on corporations with three-year average annual adjusted financial statement income (“AFSI”) exceeding $1.00 billion. The corporate alternative minimum tax will be effective for the Company beginning with 2024 and the Company is currently evaluating the potential effects of these legislative changes.

Deferred Taxes

Temporary differences and carryforwards, which give rise to a significant portion of deferred tax assets and liabilities were as follows:

	June 30, 2023		July 1, 2022
	(in millions)
Deferred tax assets:
Sales related reserves and accrued expenses not currently deductible	$	52	$	71
Accrued compensation and benefits not currently deductible	88		114
Net operating loss carryforward	183		195
Business credit carryforward	478		483
Long-lived assets	56		72
Other	171		178
Total deferred tax assets	1,028		1,113
Deferred tax liabilities:
Long-lived assets	(48)		(128)
Unremitted earnings of certain non-U.S. entities	(297)		(288)
Other	(7)		(17)
Total deferred tax liabilities	(352)		(433)
Valuation allowances	(565)		(580)
Deferred tax assets, net	$	111	$	100

The assessment of valuation allowances against deferred tax assets requires estimations and significant judgment. The Company continues to assess and adjust its valuation allowance based on operating results and market conditions. After weighing both the positive and negative evidence available, including, but not limited to, earnings history, projected future outcomes, industry and market trends and the nature of each of the deferred tax assets, the Company determined that it is able to realize most of its deferred tax assets with the exception of certain loss and credit carryforwards.

The Company is permanently reinvested with respect to certain foreign earnings. There is no unrecognized deferred tax liability associated with the repatriation of these foreign undistributed earnings as it can be achieved without additional federal tax consequences.

Effective Tax Rate

Reconciliation of the U.S. Federal statutory rate to the Company’s effective tax rate is as follows:

	2023		2022		2021
U.S. Federal statutory rate	21	%	21	%	21	%
Tax rate differential on international income	(33)		(9)		8
Tax effect of U.S. foreign income inclusion	(1)		—		5
Tax effect of U.S. foreign minimum tax	—		5		1
Tax effect of U.S. foreign derived intangible income	4		(1)		(14)
Tax effect of U.S. non-deductible stock-based compensation	(1)		1		1
Tax effect of U.S. permanent differences	—		—		1
IRS Tentative Settlement	1		15		—
Change in valuation allowance	1		1		(7)
Unremitted earnings of certain non-U.S. entities	(1)		1		6
Foreign income tax credits	—		(3)		(5)
R&D tax credits	5		(4)		(8)
U.S. return to provision	(2)		—		(3)
Other	(3)		2		5
Effective tax rate	(9)	%	29	%	11	%

Tax Holidays and Carryforwards

A substantial portion of the Company’s manufacturing operations in Malaysia, the Philippines and Thailand operate under various tax holidays and tax incentive programs, which will expire in whole or in part at various dates during 2024 through 2031. Certain tax holidays and tax incentive programs may be extended if specific conditions are met. The net impact of these tax holidays and tax incentives was an increase to the Company’s net earnings by $140 million, or $0.44 per diluted share, $566 million, or $1.79 per diluted share, and $390 million, or $1.26 per diluted share, in 2023, 2022, and 2021, respectively.

As of June 30, 2023, the Company had varying amounts of federal and state NOL/tax credit carryforwards that do not expire or, if not used, expire in various years. Following is a summary of the Company’s federal and state NOL/tax credit carryforwards and the related expiration dates of these NOL/tax credit carryforwards:

Jurisdiction	NOL/Tax Credit Carryforward Amount		Expiration
	(in millions)
Federal NOL (Pre 2017 Act Generation)	$	594	2024 to 2038
State NOL	374		2032 to 2043
Federal tax credits	51		2024 to 2032
State tax credits	725		No expiration

The federal and state NOLs and credits relating to various acquisitions are subject to limitations under Sections 382 and 383 of the Internal Revenue Code. The Company expects the total amount of federal and state NOLs ultimately realized will be reduced as a result of these provisions by $116 million and $240 million, respectively. The Company expects the total amount of federal and state credits ultimately realized will be reduced as a result of these provisions by $27 million and $2 million, respectively.

As of June 30, 2023, the Company had varying amounts of foreign NOL carryforwards that do not expire or, if not used, expire in various years, depending on the country. The major jurisdictions that the Company receives foreign NOL carryforwards and the related amounts and expiration dates of these NOL carryforwards are as follows:

Jurisdiction	NOL Carryforward Amount		Expiration
	(in millions)
Malaysia	$	106	2025 to 2028
Belgium	106		No expiration
Japan	72		2024 to 2031
Spain	45		No expiration
Netherlands	12		2025 to 2026

Uncertain Tax Positions

With the exception of certain unrecognized tax benefits that are directly associated with the tax position taken, unrecognized tax benefits are presented gross in the Consolidated Balance Sheets.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits excluding accrued interest and penalties:

	2023		2022		2021
	(in millions)
Unrecognized tax benefit, beginning balance	$	1,047	$	748	$	717
Gross increases related to current year tax positions	7		12		21
Gross increases related to prior year tax positions	22		358		46
Gross decreases related to prior year tax positions	(47)		(65)		(20)
Settlements	(5)		(1)		(9)
Lapse of statute of limitations	(3)		(5)		(7)
Unrecognized tax benefit, ending balance	$	1,021	$	1,047	$	748

As of June 30, 2023, July 1, 2022 and July 2, 2021, the portion of the gross unrecognized tax benefits, if recognized, that would affect the effective tax rate is $855 million, $903 million, and $612 million, respectively. Interest and penalties related to unrecognized tax benefits are recognized in liabilities recorded for uncertain tax positions and are recorded in the provision for income taxes. Accrued interest and penalties included in the Company’s liability related to unrecognized tax benefits as of June 30, 2023, July 1, 2022 and July 2, 2021 was $289 million, $254 million and $138 million, respectively. As of June 30, 2023, July 1, 2022 and July 2, 2021, the Company’s payables related to unrecognized tax benefits, including accrued interest and penalties, were $1.14 billion, $1.16 billion, and $750 million, respectively. The Company believes it is reasonably likely that payments of approximately $720 million to $760 million may be made within the next twelve months and have classified that portion of these unrecognized tax benefits, including interest, in Income taxes payable on the Consolidated Balance Sheets as of June 30, 2023. The remaining payables related to unrecognized tax benefits are included in Other liabilities on the Consolidated Balance Sheets as of June 30, 2023, July 1, 2022 and July 2, 2021.

The Company files U.S. Federal, U.S. state and foreign tax returns. For both federal and state tax returns, with few exceptions, the Company is subject to examination for 2013 through 2020. The Company is no longer subject to examination by the IRS for periods prior to 2012, although carry forwards generated prior to those periods may still be adjusted upon examination by the IRS or state taxing authority if they either have been or will be used in a subsequent period. In the following major foreign jurisdictions where there is no tax holiday, the Company could be subject to examination as noted below:

Jurisdiction	Period Subject to Examination
China (calendar)	2013-2022
Ireland (fiscal)	2019-2022
India (fiscal)	2009-2022
Israel (fiscal)	2014-2022
Japan (fiscal)	2016-2022
Malaysia (fiscal)	2015-2022
Thailand (fiscal)	2013-2022
Singapore (fiscal)	2019-2022
United Kingdom (fiscal)	2021-2022

The Company reached a final agreement with the IRS and received notices of deficiency with respect to years 2008 through 2012. In addition, the Company has tentatively reached a basis for resolving the notices of proposed adjustments with respect to years 2013 through 2015. As of June 30, 2023, the Company has recognized a liability for tax and interest of $753 million related to all years from 2008 through 2015. The Company expects to pay $523 million in the first quarter of 2024 with respect to years 2008 and 2012 and expect to pay any remaining balance with respect to this matter within the next twelve months.

In connection with settlements for years 2008 through 2015, the Company expects to realize reductions to its mandatory deemed repatriation tax obligations and tax savings from interest deductions in future years aggregating to approximately $160 million to $180 million.

The Company believes that adequate provision has been made for any adjustments that may result from any other tax examinations. However, the outcome of such tax examinations cannot be predicted with certainty. If any issues addressed in the Company’s tax examinations are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. As of June 30, 2023, with the exception of the tentative settlement with the IRS, it was not possible to estimate the amount of change, if any, in the unrecognized tax benefits that is reasonably possible within the next twelve months. Any significant change in the amount of the Company’s liability for unrecognized tax benefits would most likely result from additional information relating to the examination of the Company’s tax returns.