Income Taxes

As a result of the June 7, 2013 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 21.5%. Liberty Global will file income tax returns in the U.K. and U.S. for 2013 and future years, and LGI will continue to file consolidated income tax returns in the U.S. The income taxes of Liberty Global and its subsidiaries are presented on a separate return basis for each tax-paying entity or group.

Income tax benefit (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 March 31,
		2014			2013
	in millions

Computed “expected” tax benefit (expense) (a)		$	115.5		$	(14.1	)
International rate differences (b)		51.2			18.7
Change in valuation allowances		(50.3		)	(0.8		)
Tax effect of intercompany financing		40.5			—
Basis and other differences in the treatment of items associated with investments in subsidiaries and affiliates		(34.1		)	13.2
Non-deductible or non-taxable interest and other expenses		(31.0		)	(34.2		)
Recognition of previously unrecognized tax benefits		28.8			—
Other, net		(3.6		)	(3.1		)
Total income tax benefit (expense)		$	117.0		$	(20.3	)

_______________

(a)

The statutory or “expected” tax rate is the U.K. rate of 21.5% for the three months ended March 31, 2014 and the U.S. rate of 35.0% for the three months ended March 31, 2013. In July 2013, a law was enacted that decreased the U.K. corporate income tax rate to 21.0% in April 2014, with a further decline to 20.0% scheduled for April 2015. Substantially all of the impact of these rate changes on our deferred tax balances was recorded in the third quarter of 2013.


(b)	Amounts reflect statutory rates in jurisdictions in which we operate outside of the U.K. for the three months ended March 31, 2014 and outside of the U.S. for the three months ended March 31, 2013.

As of March 31, 2014, our unrecognized tax benefits included $315.6 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.

We are currently under income tax audit in Germany, the Netherlands, Slovakia and the U.S. During the next twelve months, it is reasonably possible that the resolution of ongoing examinations by tax authorities as well as expiration of statutes of limitation could result in significant reductions to our unrecognized tax benefits related to tax positions taken as of March 31, 2014. The amount of any such reductions could range up to $230 million. Other than the potential impacts of these ongoing examinations and the expected expiration of certain statutes of limitation, 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 tax 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.