Deferred taxes not provided for earnings in certain foreign subsidiaries indefinitely reinvested

  
of the UK where the applicable tax rates are higher than the UK statutory tax rate. The fiscal year 2020 foreign tax rate differential reflects a benefit related to Swiss tax law changes, which was mostly offset by current period tax charges related to true-up adjustments. Refer to the section "Swiss Tax Reform" in this footnote for a discussion of the impacts of the Swiss tax law changes which the Company recognized in the last three fiscal years.   
    Significant components of deferred tax assets and liabilities are as follows:

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  | June 30,  |
| ($ in millions) |  | 2022 |  | 2021 |
| Deferred tax assets |  |  |  |  |
| Inventories |  | $ | 15  |  |  | $ | 22  |  |
| Accrued employee benefits |  | 62  |  |  | 101  |  |
| Provisions |  | 18  |  |  | 10  |  |
| Net operating loss carryforwards |  | 325  |  |  | 293  |  |
| Tax credit carryforwards |  | 39  |  |  | 40  |  |
| Accruals and other |  | 48  |  |  | 63  |  |
| Total deferred tax assets |  | 507  |  |  | 529  |  |
| Valuation allowance |  | (407) |  |  | (403) |  |
| Net deferred tax assets |  | 100  |  |  | 126  |  |
| Deferred tax liabilities |  |  |  |  |
| Property, plant, and equipment |  | (319) |  |  | (325) |  |
| Other intangible assets, including gross impacts from Swiss tax reform |  | (304) |  |  | (326) |  |
| Trade receivables |  | —  |  |  | (7) |  |
| Derivatives |  | (4) |  |  | —  |  |
| Undistributed foreign earnings |  | (20) |  |  | (25) |  |
| Total deferred tax liabilities |  | (647) |  |  | (683) |  |
| Net deferred tax liability |  | (547) |  |  | (557) |  |
| Balance sheet location: |  |  |  |  |
| Deferred tax assets |  | 130  |  |  | 139  |  |
| Deferred tax liabilities |  | (677) |  |  | (696) |  |
| Net deferred tax liability |  | $ | (547) |  |  | $ | (557) |  |

  
    The Company maintains a valuation allowance on net operating losses and other deferred tax assets in jurisdictions for which it does not believe it is more likely than not to realize those deferred tax assets based upon all available positive and negative evidence, including historical operating performance, carry-back periods, reversal of taxable temporary differences, tax planning strategies, and earnings expectations. The Company's valuation allowance increased by $4 million, by $40 million, and by $73 million for fiscal year 2022, 2021, and 2020, respectively.  
    As of June 30, 2022 and 2021, the Company had total net operating loss carry forwards, including capital losses, in the amount of $1,178 million and $1,085 million, respectively, and tax credits in the amount of $39 million and $40 million, respectively. The vast majority of the losses and tax credits do not expire.   
    The Company considers the following factors, among others, in evaluating its plans for indefinite reinvestment of its subsidiaries' earnings: (i) the forecasts, budgets, and financial requirements of the Company and its subsidiaries, both for the long-term and for the short-term; and (ii) the tax consequences of any decision to repatriate or reinvest earnings of any subsidiary. As of June 30, 2022, the Company has not provided deferred taxes on approximately $1,093 million of earnings in certain foreign subsidiaries because such earnings are indefinitely reinvested in its international operations. Upon distribution of such earnings in the form of dividends or otherwise, the Company may be subject to incremental foreign tax. It is not practicable to estimate the amount of foreign tax that might be payable. As of June 30, 2022, a cumulative deferred tax liability of $20 million has been recorded attributable to undistributed earnings that the Company has deemed are no longer indefinitely reinvested. The remaining undistributed earnings of the Company's subsidiaries are not deemed to be indefinitely reinvested and can be repatriated at no tax cost. Accordingly, there is no provision for income or withholding taxes on these earnings.  
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