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Income Taxes
9 Months Ended
Mar. 31, 2014
Income Tax Disclosure [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 March 31, 2014, we had $44.5 million of gross unrecognized tax benefits, of which $29.2 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 $2.1 million net decrease in gross unrecognized tax benefits is primarily attributable to a reduction resulting from the expiration of statutes of limitations in the United States, net of an increase attributable to currency translation adjustments.
As of March 31, 2014, we anticipate that the liability for unrecognized tax benefits for uncertain tax positions could decrease by approximately $6.5 million over the next 12 months primarily as a result of the expiration of statutes of limitations and settlements with tax authorities. The potential decrease is primarily related to the jurisdiction in which income is taxable.
We recognize interest and penalties related to income tax matters in income tax expense. As of March 31, 2014, $6.0 million of gross interest and penalties were included in the liability for unrecognized tax benefits. As of June 30, 2013, $5.0 million of gross interest and penalties were included in the liability for unrecognized tax benefits. For the nine months ended March 31, 2014 and 2013, an expense of $0.8 million and a benefit of $1.0 million, respectively, was recorded 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 and state and local income tax matters have been concluded with the respective taxing authority through 2005 and 2004, respectively. Substantially all material foreign income tax matters have been concluded for all years through 2000.
For the three and nine months ended March 31, 2014, we had effective income tax rates of 30.3% and 32.4%, 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 a reduction in income tax reserves resulting from the expiration of statutes of limitations in the United States, offset by the effect of an increase in the statutory tax rate to which we are subject in China.
For the three and nine months ended March 31, 2013, we had effective income tax rates of 17.6% and 30.2%, respectively. The tax rates for the three and nine months ended March 31, 2013 were lower than the statutory rate of 35% primarily as a result of the reinstatement of the look-throughprovision of the U.S. tax code effective January 2, 2013, as well as the favorable effect of statutory rates applicable to income earned outside the Unites States. These reductions were partially offset in the tax rate for the nine months ended March 31, 2013 by the limitation of certain compensation-related deductions. The tax rate for the three months ended March 31, 2013 was further reduced by a release of accrued interest and penalties on income tax reserves as a result of the expiration of statutes of limitations in Europe and Africa and a reduction in U.S. state deferred tax valuation allowances.