Income Taxes

Income tax expense attributable to our earnings (loss) from continuing operations before income taxes differs from the amounts computed using the applicable income tax rate as a result of the following:



	Three months ended						Six months ended
	June 30,						June 30,
	2013			2012			2013			2012
	in millions

Computed “expected” tax benefit (expense) (a)	$	(47.1	)	$	71.1		$	(56.8	)	$	69.7
Loss of subsidiary tax attributes due to a deemed change in control	(91.4		)	—			(91.4		)	—
Non-deductible or non-taxable interest and other expenses	(48.5		)	(24.6		)	(82.7		)	(36.9		)
International rate differences (b)	28.9			(21.0		)	42.4			(19.1		)
Basis and other differences in the treatment of items associated with investments in subsidiaries and affiliates	(44.2		)	7.9			(29.2		)	(6.0		)
Non-deductible or non-taxable foreign currency exchange results	12.7			(1.6		)	10.2			(1.6		)
Enacted tax law and rate changes	(8.0		)	0.4			(8.7		)	(0.2		)
Tax effect of intercompany financing	7.4			—			7.4			—
Change in valuation allowances	1.4			(40.6		)	(0.5		)	(43.3		)
Other, net	(7.1		)	(3.4		)	(7.1		)	(7.5		)
Total	$	(195.9	)	$	(11.8	)	$	(216.4	)	$	(44.9	)

_______________

(a)

As a result of the Virgin Media Acquisition, pursuant to which Liberty Global became the publicly-held parent company of the successors by merger of LGI and Virgin Media, our statutory tax rate changed from the U.S. federal income tax rate of 35% to the U.K. statutory income tax rate of 23%. Accordingly, the statutory or “expected” tax rates used in this table are 23% for the 2013 periods and 35% for the 2012 periods.


(b)	Amounts reflect statutory rates in jurisdictions in which we operate outside of the U.K. for the 2013 periods and outside of the U.S. for the 2012 periods.

The significant components of our tax loss carryforwards and related tax assets at June 30, 2013 are as follows:



Country	Tax loss carryforward		Related tax asset		Expiration date
	in millions

U.K.	$	20,725.8	$	4,767.0	Indefinite
Germany	2,972.8		468.9		Indefinite
The Netherlands	2,685.4		671.4		2013-2022
U.S.	1,796.5		629.8		2014-2033
Luxembourg	988.4		288.8		Indefinite
France	633.1		218.0		Indefinite
Ireland	516.1		64.5		Indefinite
Belgium	314.8		107.0		Indefinite
Hungary	296.5		56.3		Indefinite
Chile	227.3		45.5		Indefinite
Romania	73.9		11.8		2016-2020
Poland	56.3		10.7		2014-2018
Puerto Rico	32.3		12.6		2016-2025
Spain	25.0		7.5		2023-2028
Other	24.1		5.9		Various
Total	$	31,368.3	$	7,365.7

Net operating losses arising from the deduction of share-based compensation are not included in the above table. These net operating losses, which aggregated $128.9 million at June 30, 2013, will not be recognized for financial reporting purposes until such time as these tax benefits can be realized as a reduction of income taxes payable.

Our tax loss carryforwards within each jurisdiction combine all companies’ tax losses (both capital and ordinary losses) in that jurisdiction, however, certain tax jurisdictions limit the ability to offset taxable income of a separate company or different tax group with the tax losses associated with another separate company or group. Some losses are limited in use due to change in control or same business tests.

At June 30, 2013, Virgin Media had property and equipment on which future U.K. tax deductions can be claimed of $20.2 billion. The maximum amount of these “capital allowances” that can be claimed in any one year is 18% of the remaining balance, after additions, disposals and prior claims.

The changes in our unrecognized tax benefits are summarized below:



	Six months ended
	June 30,
	2013			2012
	in millions

Balance at January 1	$	359.7		$	400.6
Additions based on tax positions related to the current year	86.4			6.0
Additions for tax positions of prior years	25.2			3.8
Reductions for tax positions of prior years	(5.8		)	(108.8		)
Foreign currency translation	(3.0		)	(1.3		)
Lapse of statue of limitations	(0.9		)	(0.6		)
Balance at June 30	$	461.6		$	299.7

No assurance can be given that any of these tax benefits will be recognized or realized.

As of June 30, 2013, our unrecognized tax benefits included $320.6 million of tax benefits that would have a favorable impact on our effective income tax rate if ultimately recognized, after considering amounts that we would expect to be offset by valuation allowances.

During the next twelve months, it is reasonably possible that the resolution of currently ongoing examinations by tax authorities could result in significant changes to our unrecognized tax benefits related to tax positions taken as of June 30, 2013. In this regard, (i) we expect to record an estimated $20 million to $30 million reduction during the third quarter of 2013 related to the confirmation of the amount of a deduction taken in a prior year and (ii) further significant reductions are possible prior to the end of 2013, the amount of which cannot be reasonably estimated at this time. Other than these issues, we do not expect that any changes in our unrecognized tax benefits during the next twelve months will have a material impact on our unrecognized benefits. No assurance can be given as to the nature or impact of any changes in our unrecognized tax positions during the next twelve months.