NOTE 12. INCOME TAXES

At the end of each interim period, the Company estimates the annual effective income 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 effects of changes in enacted tax laws or rates or tax status are recognized in the interim period in which the change occurs.

The Company’s effective tax rate for the three and six months ended December 31, 2014 was lower than the U.S. statutory tax rate primarily due to the impact from foreign operations which are subject to lower tax rates, partially offset by the impact of nondeductible items. The Company’s effective income tax rate for the three and six months ended December 31, 2013 was higher than the U.S. statutory rate primarily due to the impact of tax refunds received from a foreign jurisdiction, which is discussed below, and certain nontaxable indemnification payments received by 21st Century Fox, partially offset by the impact of other nondeductible items.

For the three and six months ended December 31, 2013, the Company recorded a receivable related to a refund of taxes plus interest in a foreign jurisdiction of $239 million and $794 million, respectively, and recorded a tax benefit, net of applicable taxes on interest, of $238 million and $721 million, respectively, to Income tax benefit in the Statements of Operations. Refunds received related to this matter were 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 months ended December 31, 2013			For the six months ended December 31, 2013
	(in millions)			(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 had received $654 million from the foreign tax authority. The remaining $140 million was received in January 2014.

As of December 31, 2013, the Company had paid 21st Century Fox $573 million, and the remaining $148 million was paid in January 2014. Amounts paid or payable to 21st Century Fox are net of the estimated tax associated with interest related to the refund.

The Company’s tax returns in certain foreign jurisdictions are subject to on-going review and examination. Tax examinations are often complex as tax authorities may disagree with the treatment of items reported. The Company believes it has appropriately accrued for the expected outcome of all pending tax matters and believes such liabilities represent a reasonable provision for taxes ultimately expected to be paid. However, such liabilities may need to be adjusted as these examinations progress and as more information becomes known.

During the six months ended December 31, 2014 and 2013, the Company paid gross income taxes of $50 million and $48 million, respectively, and received income tax refunds of $3 million and $682 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.