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Income Taxes
9 Months Ended
Jun. 30, 2015
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
The provision for income taxes of continuing operations for the nine months ended June 30, 2015 and 2014 was $0 million and $19 million, respectively.
The effective rate for the nine months ended June 30, 2015 differs from the statutory U.S. Federal income tax rate primarily due to (1) the effect of tax rate differentials on foreign income/loss, (2) changes in the valuation allowance established against the Company’s deferred tax assets, (3) net reductions for unrecognized tax benefits resulting from the lapse of statute of limitations offset by increases due to tax positions taken during the current period, (4) recognition of a $6 million income tax benefit related to the correction of prior period valuation allowances on deferred income tax assets, and (5) recognition of an $18 million income tax benefit as a result of net gains in other comprehensive income.
During the three months ended December 31, 2014, the Company recorded a correction to prior period valuation allowance on deferred tax assets. This adjustment decreased the provision for income taxes of continuing operations by $6 million; prior to this adjustment, the Company's provision for income taxes of continuing operations was $6 million for the nine months ended June 30, 2015. The Company evaluated the correction in relation to the nine months ended June 30, 2015, the expected full year results for fiscal 2015, as well as the period in which the adjustment originated, and concluded that the adjustment was not material to the current or any prior fiscal year.
The effective rate for the nine months ended June 30, 2014 differs from the statutory U.S. federal income tax rate primarily due to (1) the effect of tax rate differentials on foreign income/loss, (2) changes in the valuation allowance established against the Company’s deferred tax assets, (3) reductions in the Company's unrecognized tax benefits of $35 million resulting from the settlement of certain international tax exams, (4) recognition of a $22 million income tax benefit as a result of net gains in income from discontinued operations, (5) recognition of an $11 million income tax benefit as a result of net gains in other comprehensive income, and (6) recognition of a $7 million income tax benefit related to the correction of prior year deferred income tax assets and liabilities for certain non-U.S. legal entities.
During the nine months ended June 30, 2015 and 2014, the Company recorded a tax charge of $18 million and $11 million, respectively, related to net gains included in other comprehensive income and during the nine months ended June 30, 2014 recorded a tax charge of $22 million related to discontinued operations. As a result of the charges to other comprehensive income and discontinued operations for these tax effects the Company recognized an income tax benefit in continuing operations as less current period valuation allowance was required against the Company's deferred tax assets in each period.
During the three months ended June 30, 2014, the Company recorded a correction to prior period deferred income tax assets and liabilities for certain non-U.S. legal entities. This adjustment decreased the provision for income taxes of continuing operations by $7 million. Prior to this adjustment the Company's provision for income taxes of continuing operations was $26 million for the nine months ended June 30, 2014. The Company evaluated the correction in relation to the three and nine months ended June 30, 2014, the expected full year results for fiscal 2014, as well as the periods in which the adjustment originated, and concluded that the adjustment is not material to this period or any prior quarter or year.
For interim financial statement purposes, U.S. GAAP income tax expense related to ordinary income is determined by applying an estimated annual effective income tax rate against the Company's ordinary income. Income tax expense/benefit related to items not characterized as ordinary income is recognized as a discrete item when incurred. The estimation of the Company's annual effective income tax rate requires the use of management forecasts and other estimates, a projection of jurisdictional taxable income and losses, application of statutory income tax rates, and an evaluation of valuation allowances. The Company's estimated annual effective income tax rate may be revised, if necessary, in each interim period during the fiscal year.