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Income Taxes
6 Months Ended
Dec. 31, 2013
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's 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, 2013, we had $48.8 million of gross unrecognized tax benefits, of which $32.3 million would impact the effective tax rate if recognized. As of June 30, 2013, we had $46.6 million of gross unrecognized tax benefits, of which $31.0 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 $2.2 million net increase in gross unrecognized tax benefits is primarily associated with tax positions taken in prior periods related to the jurisdiction in which income is taxable, taxation of stock-based compensation and restrictions on the use of operating loss carryforwards.
As of December 31, 2013, we anticipate that the liability for unrecognized tax benefits for uncertain tax positions could decrease by approximately $6.0 million over the next 12 months primarily as a result of the expiration of statutes of limitations.
We recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2013, $5.8 million of gross interest and penalties were included in our liability for unrecognized tax benefits. As of June 30, 2013, $5.0 million of gross interest and penalties were included in our liability for unrecognized tax benefits. Income tax expense recorded for the six months ended December 31, 2013 and 2012 includes an expense of approximately $0.6 million and a benefit of $0.8 million, respectively, for interest and penalties related to tax matters.
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 2004 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, 2013, we had effective income tax rates of 34.1% and 33.7%, respectively. 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.
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 of limitations 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.