Note K—Income Taxes
The Tax
Cuts and Jobs
Act of 2017
(the “2017 Tax
Legislation”) enacted on December 22,
2017, significantly revised the
U.S. corporate income tax
code by,
among
other things, lowering
federal corporate income
tax rates,
implementing a modified
territorial tax
system and imposing
a repatriation tax ("transition
tax") on deemed
repatriated cumulative earnings of foreign subsidiaries
which will be paid over
eight years. In addition, new
taxes were imposed related to
foreign income, including a
tax on global intangible low-taxed income (“GILTI”) as well as a limitation on the deduction for business interest expense (“Section 163(j)"). GILTI is the excess of the
shareholder’s net controlled foreign corporations
("CFC") net tested income over
the net deemed tangible income.
GILTI income is eligible for a deduction of
up to 50%
of the income inclusion,
but the deduction is
limited to the amount
of U.S. adjusted
taxable income.
The Section 163(j) limitation
does not allow
the amount of deductible
interest to
exceed the
sum of the
taxpayer's business interest
income and 30%
of the
taxpayer’s adjusted
taxable income. We
have included in
our calculation of
our
effective tax rate the estimated impact of
GILTI and Section
163(j). In addition, we have elected to account
for the tax on GILTI
as a period cost and, therefore, do
not
record deferred taxes related to GILTI on our foreign subsidiaries.
Our effective income tax rate on operations for the three-months
ended December 2022 was
35.0
% compared to a rate of
15.1
% in the same period of the prior year, and
an effective rate of
17.9
% for fiscal 2022. We
generally benefit from having income in
foreign jurisdictions that are either exempt
from income taxes or have tax
rates
that are lower than those
in the United States.
As such, changes in the
mix of U.S. taxable income compared
to profits in tax-free or
lower-tax jurisdictions can have a
significant impact on our overall effective tax rate.