NOTE 12. INCOME TAXES

The Company’s effective tax rate for the three months ended March 31, 2014 was lower than the U.S. statutory tax rate primarily due to the impact of foreign tax refunds and resolution of uncertain state tax positions in the quarter. The effective tax rate was also favorably impacted by certain non-taxable indemnification payments received from 21st Century Fox, partially offset by the impact of other permanent differences as well as the geographical mix of pre-tax earnings.

The Company’s effective income tax rate for the nine months ended March 31, 2014 was higher than the statutory tax rate primarily due to the impact of tax refunds from a foreign jurisdiction, which is discussed below.

The Company’s effective income tax rate for the three months ended March 31, 2013 was lower than the U.S. statutory rate, primarily due to the non-taxable gain on the sale of SKY Network Television Ltd., partially offset by the impact of other permanent differences as well as the geographical mix of pre-tax earnings.

The Company’s effective income tax rate for the nine months ended March 31, 2013 was lower than the U.S. 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, the non-taxable gain on the sale of SKY Network Television Ltd., partially offset by the impact of other permanent differences as well as the geographical mix of pre-tax earnings.

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 nine months ended March 31, 2014, the Company recorded $794 million 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 on interest, of $721 million for the nine months ended March 31, 2014 to Income tax benefit in the Statements of Operations. 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 nine months ended March 31, 2014, the Company recorded an expense to Other, net of $721 million 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 nine months ended March 31, 2014
	(in millions)
Other, net	$	(721	)
Income tax benefit		721

Net impact to the Statement of Operations	$	—

As of March 31, 2014, the Company received $794 million from the foreign tax authority. As of March 31, 2014, the Company paid 21st Century Fox $721 million. Amounts paid to 21st Century Fox are net of the estimated tax associated with interest related to the refund. The Company accounts for interest on taxes as a component of Income tax (expense) benefit.

During the nine months ended March 31, 2014 and 2013, the Company paid gross income taxes of $69 million and $82 million, respectively, and received income tax refunds of $840 million and $12 million, respectively. The income tax refunds for the nine months ended March 31, 2014 included the $794 million related to amounts received from the foreign tax authority discussed above.