Income Taxes

6 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Tax expense for the three month period ended December 31, 2023 was $2.4 million on profit before tax of $2.0 million (an effective tax rate of 120%). During the three month period ended December 31, 2023, the Company recorded a discrete tax expense of $2.0 million, increasing its valuation allowance against its foreign tax credit carryforwards, due to IRS Notice 2023-80 released in December 2023, which modifies the temporary relief period from applying the final foreign tax credit regulations to tax years beginning on or after December 28, 2021 and ending before the date that notice or guidance withdrawing or modifying the temporary relief is issued. Other than this discrete tax expense recorded, the effective rate for the three months ended December 31, 2023 was lower than the U.S. statutory tax rate of 21% primarily due to the favorable impact that IRS Notice 2023-80 has on the Company current year GILTI inclusion and creditable foreign withholding taxes, offset by the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34% and foreign losses not benefitted.

Tax expense for the three month period ended December 31, 2022 was $1.7 million on profit before tax of $4.8 million (an effective tax rate of 35%). The effective tax rate for the three month period ended December 31, 2022 was higher than the U.S. statutory tax rate of 21% primarily due to the GILTI provisions, and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%, offset by tax credits and permanent deductions generated from research expenses.

Tax expense for the six month period ended December 31, 2023 was $2.5 million on profit before tax of $4.1 million (an effective tax rate of 62%). During the six month period ended December 31, 2023, the Company recorded a discrete tax expense of $1.3 million related to IRS Notice 2023-55 released in July 2023 which grants taxpayers temporary relief from applying these final foreign tax credit regulations for tax years beginning on or after December 28, 2021 and ending on or before December 31, 2023 and IRS Notice 2023-80 released in December 2023 which modifies the temporary relief period from applying the final foreign tax credit regulations to tax years beginning on or after December 28, 2021 and ending before the date that notice or guidance withdrawing or modifying the temporary relief is issued. Other than this discrete tax expense

recorded, the effective rate for the six months ended December 31, 2023 was higher than the U.S. statutory tax rate of 21% primarily due to the GILTI provisions, and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%, offset by tax credits and permanent deductions generated from research expenses.

Tax expense for the six month period ended December 31, 2022 was $2.7 million on profit before tax of $7.9 million (an effective tax rate of 34%). The effective tax rate for the six month period ended December 31, 2022 was higher than the U.S. statutory tax rate of 21% primarily due to the GILTI provisions, and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%, offset by discrete tax benefits recognized from excess stock compensation deductions, tax credits and permanent deductions generated from research expenses.

The Company has considered the positive and negative evidence to determine the need for a valuation allowance offsetting the deferred tax assets in the U.S. and has concluded that a partial valuation allowance is required against foreign tax credit carryforwards and certain state net operating loss carryforwards at December 31, 2023 and June 30, 2023. The Company had long term tax obligations related primarily to transfer pricing adjustments at December 31, 2023 and June 30, 2023.