Income Taxes

9 Months Ended

Mar. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Tax expense for the three month period ended March 31, 2024 was $0.1 million on profit before tax of $0.7 million (an effective tax rate of 14%). The effective rate for the three months ended March 31, 2024 was lower than the U.S. statutory tax rate of 21% due in part to a discrete tax benefit of $0.1 million related to the reversal of uncertain tax positions due to the lapse in the statute of limitations and tax credits and permanent deductions generated from research expenses, offset by the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34% and foreign losses not benefited.

During the three month period ended March 31, 2023 the Company recorded a discrete tax benefit of $5.0 million related to the Company’s partial release of its valuation allowance against its U.S. foreign tax credits and state net operating losses carryforwards, which are expected to be utilized based on demonstrated profitability and current and future forecast income. Excluding the tax benefit related to the partial release of valuation allowance of 144%, the effective tax rate for the three months ended March 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%, and non-creditable foreign withholding tax.

Tax expense for the nine month period ended March 31, 2024 was $2.6 million on profit before tax of $4.8 million (an effective tax rate of 51%). During the nine month period ended March 31, 2024, 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 nine months ended March 31, 2024 was higher than the U.S. statutory tax rate of 21% primarily due to 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 nine months ended March 31, 2023 was a benefit of $1.3 million on profit before tax of $11.4 million (an effective tax rate of 11%). During the nine months ended March 31, 2023, the Company recorded a discrete tax benefit of $5.0 million related to the Company’s partial release of its valuation allowance against its U.S. foreign tax credits and state net operating losses carryforwards, which are expected to be utilized based on demonstrated profitability and current and future forecast income. In addition the Company used current forecasts of future taxable income. Excluding the tax benefit related to the partial release of valuation allowance of 44%, the effective tax rate for the nine months ended March 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%, and non-creditable foreign withholding tax.

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 March 31, 2024 and June 30, 2023. The Company had long term tax obligations related primarily to transfer pricing adjustments at March 31, 2024 and June 30, 2023.