NOTE 12. INCOME TAXES

The Company’s effective income tax rate for the three and six months ended December 31, 2013 was higher than the statutory rate primarily due to the impact of tax refunds from a foreign jurisdiction, which is discussed below, certain non-taxable indemnification payments received from 21st Century Fox, partially offset by the impact of other permanent differences. In addition, the Company’s effective tax rate is impacted by the mix of pre-tax income or loss between jurisdictions and the overall level of pre-tax income, including the impact of non-recurring items. The Company’s effective income tax rate for the three and six months ended December 31, 2012 was lower than the statutory rate, primarily due to the non-taxable gain and reversal of the historic deferred tax liability associated with the consolidation of FOX SPORTS Australia, foreign operations which are subject to lower tax rates, partially offset by the impact of permanent differences.

At the end of each interim period, the Company estimates the annual effective tax rate and applies that rate to its ordinary quarterly earnings. The tax expense or benefit related to significant, unusual or extraordinary items that will be separately reported or reported net of their related tax effect, and are individually computed, are recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates or tax status is recognized in the interim period in which the change occurs.

The Company filed refund claims for certain losses pertaining to periods prior to the Separation in a foreign jurisdiction that were subject to litigation. As of June 30, 2013, the Company had not recognized an asset for these claims since such amounts were being disputed by the foreign tax authority and the resolution was not determinable at that date because the foreign tax authority had further legal recourse including the ability to appeal a favorable ruling for the Company.

In the first quarter of fiscal 2014, the foreign tax authority determined that it would not appeal such ruling received by the Company in July 2013 and therefore, a portion of the uncertain matter was resolved during the three months ended September 30, 2013. In the second quarter of fiscal 2014, the foreign tax authority completed its review and the remaining uncertain matter was resolved during the three months ended December 31, 2013. For the three and six months ended December 31, 2013, the Company recorded $239 million and $794 million, respectively, for the gross tax refund and interest owed to the Company by a foreign tax authority upon completion of its review of the uncertain tax matter.

The Company recorded a tax benefit, net of applicable taxes, of $238 million and $721 million for the three and six months ended December 31, 2013 to Income tax benefit in the Statements of Operations, respectively. Refunds received related to these matters are to be remitted to 21st Century Fox, net of applicable taxes on interest, in accordance with the terms of the Tax Sharing and Indemnification Agreement. Accordingly, for the three and six months ended December 31, 2013, the Company recorded an expense to Other, net of $238 million and $721 million, respectively, for the payable to 21st Century Fox in the Statements of Operations. Refer to the table below for the net impact of the tax refund and interest, net of tax, recorded in the Statements of Operations for the three and six months ended December 31, 2013:


	For the three months ended December 31,			For the six months ended December 31,
	2013			2013
	(in millions)
Other, net	$	(238	)	$	(721	)
Income tax benefit		238			721

Net impact to the Statement of Operations	$	—		$	—

As of December 31, 2013, the Company received $654 million from the foreign tax authority. The remaining $140 million is included in Income Taxes Receivable on the Balance Sheets and was received in January 2014. Refer to the table below for the Balance Sheet impact on the refund and interest from the foreign tax authority:


	For the six months ended December 31, 2013
	(in millions)
Gross tax refund and interest receivable	$	794
Amount received from foreign tax authority as of December 31, 2013		654

Receivable recorded within Income taxes receivable as of December 31, 2013	$	140

As of December 31, 2013, the Company paid 21st Century Fox $573 million and the remaining $148 million is payable to 21st Century Fox and is included in Amounts due to 21st Century Fox, net on the Balance Sheets. Amounts paid or payable to 21st Century Fox are net of the estimated tax associated with interest related to the refund. Refer to the table below for the Balance Sheet impact of the payable to 21st Century Fox:


	For the six months ended December 31, 2013
	(in millions)
Amount due to 21st Century Fox	$	721
Amounts paid to 21st Century Fox as of December 31, 2013		(573	)

Payable recorded within Amounts due to 21st Century Fox, net as of December 31, 2013	$	148

During the six months ended December 31, 2013 and 2012, the Company paid gross income taxes of $48 million and $55 million, respectively and received income tax refunds of $682 million and $5 million, respectively. The income tax refunds for the six months ended December 31, 2013 included the $654 million related to amounts received from the foreign tax authority discussed above.