Income Taxes

12 Months Ended

Jun. 27, 2021

The components of income (loss) before income taxes were as follows:


	Year Ended
	June 27, 2021		June 28, 2020		June 30, 2019
	(in thousands)
United States	$	120,161	$	44,739	$	(59,876)
Foreign	4,250,643		2,530,239		2,506,447
	$	4,370,804	$	2,574,978	$	2,446,571

Significant components of the provision (benefit) for income taxes attributable to income before income taxes were as follows:


	Year Ended
	June 27, 2021		June 28, 2020		June 30, 2019
	(in thousands)
Federal:
Current	$	437,525	$	216,513	$	143,845
Deferred	(139,531)		(18,458)		(10,722)
	297,994		198,055		133,123
State:
Current	13,560		4,724		5,994
Deferred	(8,324)		6,524		4,944
	5,236		11,248		10,938
Foreign:
Current	162,738		119,766		110,283
Deferred	(3,622)		(5,844)		797
	159,116		113,922		111,080
Total provision for income taxes	$	462,346	$	323,225	$	255,141

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as the tax effect of carryforwards. Significant components of the Company’s net deferred tax assets and liabilities were as follows:


	June 27, 2021		June 28, 2020
	(in thousands)
Deferred tax assets:
Tax carryforwards	$	281,022	$	249,874
Allowances and reserves	165,335		119,974
Equity-based compensation	7,322		7,167
Inventory valuation differences	28,877		26,069

Outside basis differences of foreign subsidiaries	193,734		105,159
Operating lease liabilities	37,562		40,157
Other	22,575		26,361
Gross deferred tax assets	736,427		574,761
Valuation allowance	(277,133)		(244,973)
Net deferred tax assets	459,294		329,788
Deferred tax liabilities:
Intangible assets	(3,113)		(6,442)
Convertible debt	—		(24,530)
Capital assets	(97,602)		(105,508)
Amortization of goodwill	(13,161)		(12,256)

Right-of-use assets	(37,562)		(40,157)
Other	(262)		(7,509)
Gross deferred tax liabilities	(151,700)		(196,402)
Net deferred tax assets	$	307,594	$	133,386

The change in gross deferred tax assets, gross deferred tax liabilities, and valuation allowance between fiscal year 2021 and 2020 is primarily due to increases in gross deferred tax assets for outside basis differences of foreign subsidiaries, allowances and reserves, and tax credits, and decreases in gross deferred tax liabilities for convertible debt.

The Company previously made an accounting policy election to record deferred taxes related to Global Intangible Low-Taxed Income (“GILTI”).

Realization of the Company’s net deferred tax assets is based upon the weighting of available evidence, including such factors as the recent earnings history and expected future taxable income. The Company believes it is more likely than not that such deferred tax assets will be realized with the exception of $277.1 million related to California deferred tax assets. At June 27, 2021, the Company continued to record a valuation allowance to offset the entire California deferred tax asset balance due to the single sales factor apportionment resulting in lower taxable income in California.

At June 27, 2021, the Company had federal net operating loss carryforwards of $25.2 million. If not utilized, these losses will begin to expire in fiscal year 2022, and are subject to limitation on their utilization.

At June 27, 2021, the Company had state net operating loss carryforwards of $94.5 million. If not utilized, these losses will begin to expire in fiscal year 2023 and are subject to limitation on their utilization.

At June 27, 2021, the Company had state tax credit carryforwards of $408.9 million. Substantially all of these credits can be carried forward indefinitely.

A reconciliation of income tax expense provided at the federal statutory rate (21% in fiscal years 2021, 2020, and 2019) to actual income tax expense is as follows:


	Year Ended
	June 27, 2021		June 28, 2020		June 30, 2019
	(in thousands)
Income tax expense computed at federal statutory rate	$	917,869	$	540,745	$	513,780
State income taxes, net of federal tax benefit	(33,478)		(28,046)		(17,565)
Foreign income taxed at different rates	(365,886)		(146,023)		(260,344)
Settlements and reductions in uncertain tax positions	(13,613)		(12,854)		(31,291)
Tax credits	(86,709)		(88,762)		(71,779)
State valuation allowance, net of federal tax benefit	39,477		30,923		26,742
Equity-based compensation	(45,764)		(23,248)		(7,566)
Other permanent differences and miscellaneous items	50,450		50,490		39,251
U.S. tax reform impacts	—		—		63,913
	$	462,346	$	323,225	$	255,141

In November 2019, the Ninth Circuit rejected the en banc appeal petitioned by Altera in July 2019. In that quarter, the Company evaluated the impact of the decision and viewed the denial as an indication that Altera’s position of excluding stock-based compensation expense in an intercompany cost-sharing arrangement was unlikely to be sustained upon further litigation. As a result, the Company reversed $74.5 million of net tax assets associated with stock-based compensation benefits related to previous years in the Condensed Consolidated Financial Statements in the three months ended December 29, 2019 and the Company no longer reflected a net tax benefit within its financial statements related to excluding stock-based compensation from its intercompany cost-sharing arrangement. In February 2020, Altera petitioned the SCOTUS to hear their case. In June 2020, the SCOTUS denied the petition.

Earnings of the Company’s foreign subsidiaries included in consolidated retained earnings that are indefinitely reinvested in foreign operations aggregated to approximately $774.5 million at June 27, 2021. If these earnings were remitted to the United States, they would be subject to foreign withholding taxes of approximately $122.1 million at current statutory rates. The potential tax expense associated with these foreign withholding taxes would be substantially offset by foreign tax credits that would be generated in the United States upon remittance.

The Company’s gross uncertain tax positions were $566.8 million, $476.7 million, and $420.8 million as of June 27, 2021, June 28, 2020, and June 30, 2019, respectively. During fiscal year 2021, gross uncertain tax positions increased by $90.1 million. The amount of uncertain tax positions that, if recognized, would impact the effective tax rate was $504.4 million, $423.8 million, and $376.0 million, as of June 27, 2021, June 28, 2020, and June 30, 2019, respectively. The aggregate changes in the balance of gross uncertain tax positions were as follows:



	(in thousands)
Balance as of June 24, 2018	$	305,413
Settlements and effective settlements with tax authorities	(3,705)
Lapse of statute of limitations	(28,176)
Increases in balances related to tax positions taken during prior periods	78,927
Decreases in balances related to tax positions taken during prior periods	(1,577)
Increases in balances related to tax positions taken during current period	69,890
Balance as of June 30, 2019	420,772
Settlements and effective settlements with tax authorities	(1,836)
Lapse of statute of limitations	(8,026)
Increases in balances related to tax positions taken during prior periods	3,206
Decreases in balances related to tax positions taken during prior periods	(3,989)
Increases in balances related to tax positions taken during current period	66,568
Balance as of June 28, 2020	476,695
Settlements and effective settlements with tax authorities	(1,443)
Lapse of statute of limitations	(8,456)
Increases in balances related to tax positions taken during prior periods	15,986
Decreases in balances related to tax positions taken during prior periods	(2,746)
Increases in balances related to tax positions taken during current period	86,735
Balance as of June 27, 2021	$	566,771

The Company recognizes interest expense and penalties related to the above uncertain tax positions within income tax expense. The Company had accrued $54.6 million, $40.2 million, and $19.1 million cumulatively for gross interest and penalties as of June 27, 2021, June 28, 2020, and June 30, 2019, respectively.

The Company is subject to audits by state and foreign tax authorities. The Company is unable to make a reasonable estimate as to when cash settlements, if any, with the relevant taxing authorities will occur.

The Company files U.S. federal, U.S. state, and foreign income tax returns. As of June 27, 2021, tax years 2004-2021 remain subject to examination in the jurisdictions where the Company operates. The Internal Revenue Service (“IRS”) is examining the Company’s U.S. federal income tax return for the fiscal year ended June 24, 2018. As of June 27, 2021, no significant adjustments have been proposed by the IRS. The Company is unable to make a reasonable estimate as to when cash settlements, if any, with the IRS will occur.

The Company is in various stages of examinations in connection with all of its tax audits worldwide, and it is difficult to determine when these examinations will be settled. It is reasonably possible that over the next 12-month period the Company may experience an increase or decrease in its uncertain tax positions as a result of tax examinations or lapses of statutes of limitation. The change in uncertain tax positions may range up to $37.7 million.

- 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.

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