Total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate

[Table of Contents](#i2ba0bd92bcb14d27a1d59d9667569d45_7)THE ESTÉE LAUDER COMPANIES INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSignificant components of the Company’s deferred income tax assets and liabilities were as follows:

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|   |  | June 30 |
| (In millions) |  | 2022 |  | 2021 |
| Deferred tax assets: |  |   |  |   |
| Compensation-related expenses |  | $ | 203  |  |  | $ | 210  |  |
| Inventory obsolescence and other inventory related reserves |  | 59  |  |  | 72  |  |
| Retirement benefit obligations |  | 42  |  |  | 54  |  |
| Various accruals not currently deductible |  | 269  |  |  | 239  |  |
| Net operating loss, credit and other carryforwards |  | 192  |  |  | 169  |  |
| Unrecognized state tax benefits and accrued interest |  | 13  |  |  | 12  |  |
| Lease liabilities |  | 504  |  |  | 591  |  |
| Other differences between tax and financial statement values |  | 26  |  |  | 74  |  |
|   |  | 1,308  |  |  | 1,421  |  |
| Valuation allowance for deferred tax assets |  | (185) |  |  | (168) |  |
| Total deferred tax assets |  | 1,123  |  |  | 1,253  |  |
|  |  |  |  |  |
| Deferred tax liabilities: |  |  |  |  |
| Fixed assets and intangibles |  | (204) |  |  | (329) |  |
| ROU assets |  | (452) |  |  | (517) |  |
| Partnership interest in DECIEM |  | (431) |  |  | (467) |  |
| Other differences between tax and financial statement values |  | (33) |  |  | (158) |  |
| Total deferred tax liabilities |  | (1,120) |  |  | (1,471) |  |
| Total net deferred tax assets (liabilities) |  | $ | 3  |  |  | $ | (218) |  |
|  |  |  |  |  |

  
As of June 30, 2022, the Company had net deferred tax assets of $3 million, of which $695 million is included in Other assets and $692 million is included in Other noncurrent liabilities in the accompanying consolidated balance sheets. As of June 30, 2021, the Company had net deferred tax liabilities of $218 million, of which $631 million is included in Other assets and $849 million is included in Other noncurrent liabilities in the accompanying consolidated balance sheets.  
As of June 30, 2022 and 2021, certain subsidiaries had $523 million and $490 million of foreign net operating loss carryforwards, respectively, the tax effect of which was $136 million and $129 million, respectively, as well as U.S. federal tax credit carryforwards of $56 million and $41 million, respectively. With the exception of $459 million of net operating losses with an indefinite carryforward period as of June 30, 2022, these net operating loss carryforwards expire at various dates through fiscal 2042. The tax credit carryforwards will begin to expire in fiscal 2030.   
The Company has recorded a valuation allowance of $185 million and $168 million as of June 30, 2022 and 2021, respectively, principally against certain net operating loss carryforwards and tax credit carryforwards. A valuation allowance has been provided for those deferred tax assets for which, in the opinion of management, it is more-likely-than-not that the deferred tax assets will not be realized.  
As of June 30, 2022, 2021 and 2020, the Company had gross unrecognized tax benefits of $61 million, $62 million, and $70 million, respectively. At June 30, 2022, the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $51 million.  
The Company classifies applicable interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes. The total gross accrued interest and penalty expense recorded during fiscal 2022, 2021 and 2020 in the accompanying consolidated statements of earnings was $4 million, $2 million and $3 million, respectively. The total gross accrued interest and penalties in the accompanying consolidated balance sheets at June 30, 2022 and 2021 was $14 million and $14 million, respectively.   
  
F-40
