Note 12—Income Taxes

In February 2017, the Company completed a reorganization of Visa Europe and certain other legal entities ("legal entity reorganization" or "reorganization") to align the Company's corporate structure to the geographic jurisdictions in which it conducts business operations. As a result of the reorganization, during the nine months ended June 30, 2017, the Company recorded a non-recurring, non-cash income tax provision of $1.5 billion primarily related to the elimination of deferred tax balances originally recognized upon the acquisition of Visa Europe. Associated with this reorganization, the newly-formed Visa Foundation received all Visa Inc. shares held by Visa Europe that were previously recorded as treasury stock.

The effective income tax rates were 29% and 47% for the three and nine months ended June 30, 2017, respectively, and 2% and 26% for the three and nine months ended June 30, 2016, respectively. The effective tax rate for the three and nine months ended June 30, 2017 differs from the effective tax rate in the same periods in the prior fiscal year primarily due to:


•	the aforementioned $1.5 billion non-recurring, non-cash income tax provision related to the legal entity reorganization recorded in the quarter ended March 31, 2017;


•	$71 million tax benefit related to Visa Foundation's receipt of Visa Inc. shares mentioned above, recorded in the quarter ended March 31, 2017;


•	$13 million and $59 million of excess tax benefits related to share-based payments recorded during the three and nine months ended June 30, 2017, respectively, as a result of early adoption of Accounting Standards Update 2016-09. See Note 1—Summary of Significant Accounting Policies; and


•	the absence of:


▪	the effect of one-time items related to the Visa Europe acquisition recorded during the quarter ended June 30, 2016, the most significant of which was the $1.9 billion U.S. loss related to the effective settlement of the Framework Agreement between Visa and Visa Europe; and


▪	the non-taxable $255 million revaluation of the Visa Europe put option recorded in the quarter ended December 31, 2015.

During the three and nine months ended June 30, 2017, the Company's gross unrecognized tax benefits increased by $60 million and $116 million, respectively. The Company's unrecognized tax benefits that would favorably impact the effective tax rate, if recognized, increased by $52 million and $149 million for the three and nine months ended June 30, 2017, respectively. The increase in unrecognized tax benefits is primarily related to various tax positions across several jurisdictions. During the three and nine months ended June 30, 2017 and 2016, there were no significant changes in interest and penalties related to uncertain tax positions.

The Company’s tax filings are subject to examination by the U.S. federal, state and foreign taxing authorities. The timing and outcome of the final resolutions of the various ongoing income tax examinations are highly uncertain. It is not reasonably possible to estimate the increase or decrease in unrecognized tax benefits within the next twelve months.