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Income Taxes
9 Months Ended
Mar. 31, 2012
Income Tax Expense (Benefit) [Abstract]  
Income Taxes
INCOME TAXES
We determine our global provision for corporate income taxes in accordance with ASC 740, “Income Taxes.” We recognize our deferred tax assets and liabilities based upon the effect of temporary differences between the book and tax basis of recorded assets and liabilities. Further, we follow a methodology in which we identify, recognize, measure and disclose in our financial statements the effects of any uncertain tax return reporting positions that we have taken or expect to take. The methodology is based on the presumption that all relevant tax authorities possess full knowledge of those tax reporting positions, as well as all of the pertinent facts and circumstances.
As of June 30, 2011, we had $62.2 million of gross unrecognized tax benefits of which $16.6 million would impact the effective tax rate if recognized. As of March 31, 2012, we had $52.4 million of gross unrecognized tax benefits of which $10.4 million would impact the effective tax rate if recognized. The reserves for unrecognized tax positions primarily relate to exposures for income tax matters such as changes in the jurisdiction in which income is taxable and taxation of certain investments. The $9.8 million net decrease in gross unrecognized tax benefits is composed of a decrease of $9.0 million related to settlements with tax authorities and the expiration of statutes of limitation in Europe, and a decrease of $2.5 million attributable to currency translation adjustments, partly offset by an increase of $1.7 million related to prior year tax positions in Europe and Asia. As of March 31, 2012, we anticipate that the liability for unrecognized tax benefits for uncertain tax positions could decrease by approximately $4.7 million over the next twelve months primarily as a result of the expiration of statutes of limitation.
We recognize interest and penalties related to income tax matters in income tax expense. As of June 30, 2011, $9.1 million of gross interest and penalties were included in our liability for unrecognized tax benefits. Income tax expense recorded through March 31, 2012 includes a benefit of approximately $1.6 million of interest and penalties primarily as a result of the changes in gross unrecognized tax benefits described above. As of March 31, 2012, $6.8 million of gross interest and penalties were included in our liability for unrecognized tax benefits.
We are subject to U.S. federal income tax, as well as income tax in multiple state, local and foreign jurisdictions. All material federal, state, and local income tax matters through 2005 have been concluded. Substantially all material foreign income tax matters have been concluded for all years through 2000.
For the three and nine months ended March 31, 2012, we had effective income tax rates of (4.2)% and 17.2%, respectively. The tax rates for these periods were lower than the expected statutory rate primarily as a result of a $0.9 million quarter specific benefit recorded in the first quarter of fiscal year 2012 related to a reduction in the statutory tax rate in the United Kingdom, a $6.8 million quarter specific benefit recorded in the third quarter of fiscal year 2012 resulting from the release of income tax reserves and associated reserves for interest and penalties due to settlements with tax authorities and the expiration of statutes of limitation in Europe, as well as the effect of a lower projected annual effective tax rate for Fiscal Year 2012 on both the three and nine month periods. The projected annual effective tax rate is lower than the expected statutory rate because of the favorable effect of statutory rates applicable to income earned outside the United States on the projected annual effective tax rate.
For the three and nine months ended March 31, 2011, we had effective income tax rates of (5.9)% and 12.1%, respectively. The tax rates for these periods were lower than the expected statutory rate primarily because of quarter specific reductions in the valuation allowance, as well as the effect of a lower projected annual effective tax rate for Fiscal Year 2011 on both the three and nine month periods. The projected annual effective tax rate is lower than the expected statutory rate because of additional reductions in valuation allowances resulting from improved profitability in the United Kingdom, as well as the favorable effect of statutory rates applicable to income earned outside the United States