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Income Taxes
6 Months Ended
Dec. 31, 2012
Income Tax Expense (Benefit) [Abstract]  
Income Taxes
INCOME TAXES
We determine our global provision for corporate income taxes in accordance with FASB 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. Our quarterly effective income tax rate contains management estimates of our annual projected profitability in the various taxing jurisdictions in which we operate. Since the statutory tax rates differ in the jurisdictions in which we operate, changes in the distribution of profits and losses may have a significant impact on our effective income tax rate.
As of December 31, 2012, we had $50.0 million of gross unrecognized tax benefits of which $15.5 million would impact the effective tax rate if recognized. As of June 30, 2012, we had $53.8 million of gross unrecognized tax benefits of which $10.0 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. The $3.8 million net decrease in gross unrecognized tax benefits is primarily attributable to the expiration of statutes of limitation in Europe and the United States, and a settlement with tax authorities in Asia.
As of December 31, 2012, we anticipate that the liability for unrecognized tax benefits for uncertain tax positions could decrease by approximately $4.3 million over the next twelve months primarily as a result of the expiration of statutes of limitation and settlements with tax authorities.
We recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2012, $5.3 million of gross interest and penalties were included in our liability for unrecognized tax benefits. As of June 30, 2012, $6.1 million of gross interest and penalties were included in our liability for unrecognized tax benefits. Income tax expense recorded for each of the six months ended December 31, 2012 and 2011 includes a benefit of approximately $0.8 million and an expense of approximately $0.7 million, respectively.
We are subject to U.S. federal income tax, as well as income tax in multiple state, local and foreign jurisdictions. All material U.S. federal, state, and local income tax matters through 2005 have been concluded with the respective taxing authority. Substantially all material foreign income tax matters have been concluded for all years through 2000 with the respective taxing authority.
For the three and six months ended December 31, 2012, we had effective income tax rates of 31.7% and 37.9%, respectively. The tax rate for the three months ended December 31, 2012 was lower than the expected statutory rate of 35% primarily as a result of a release of reserves for interest and penalties following the expiration of statutes in a European legal entity as well as the favorable effect of statutory rates applicable to income earned outside the United States on the projected annual effective tax rate. These benefits were partially offset by an increase in valuation allowances associated with net operating losses in Europe. The tax rate for the six months ended December 31, 2012 was higher than the expected statutory rate of 35% primarily as a result of increases in expense associated with the limitation of certain compensation-related deductions and an increase in valuation allowances associated with net operating losses in Europe. These increases were partially offset by a release of reserves for interest and penalties following the expiration of statutes in a European legal entity as well as 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 six months ended December 31, 2011, we had effective income tax rates of 31.2% and 31.6% The tax rates for these periods were lower than the expected statutory rate of 35% primarily as a result of the favorable effect of statutory rates applicable to income earned outside the United States on the projected annual effective tax rate. The six months ended was further reduced by the benefit from reduction in the statutory tax rate in the United Kingdom.
The American Taxpayer Relief Act of 2012 ("the Act") was enacted on January 2, 2013. The Act reinstates the "look-through" provision of tax code which will result in a reduction in our projected annual effective tax rate for Fiscal Year 2013 and the associated income tax expense. Application of the reinstated provisions to the six months ended December 31, 2012 would have reduced income tax expense for that period by approximately $1.5 million. The benefit of the reduction in the annual effective tax rate will be included in our income tax expense for the third and fourth quarter of Fiscal Year 2013.