6. Income Taxes

The effective income tax rate for the three months ended June 30, 2015, was lower than the U.S. corporate income tax rate of 35% (“U.S. statutory rate”) primarily due to income tax deductions allowed for corporate dividends received, the presentation of taxes on our share of earnings generated from equity method investments reflected in net investment income and tax credits.

The effective income tax rate for the three months ended June 30, 2014, was lower than the U.S. statutory rate primarily due to income tax deductions allowed for corporate dividends received, the presentation of taxes on our share of earnings generated from equity method investments reflected in net investment income and lower tax rates of foreign jurisdictions.

The effective income tax rate for the six months ended June 30, 2015, was lower than the U.S. statutory rate primarily due to a change in deferred tax balances related to the merger of two of our Chilean legal entities, income tax deductions allowed for corporate dividends received and the presentation of taxes on our share of earnings generated from equity method investments reflected in net investment income partially offset by the negative impact of a court ruling on some uncertain tax positions.

The effective income tax rate for the six months ended June 30, 2014, was lower than the U.S. statutory rate primarily due to income tax deductions allowed for corporate dividends received, the presentation of taxes on our share of earnings generated from equity method investments reflected in net investment income and tax credits.

We are a U.S. shareholder in various foreign entities classified as controlled foreign corporations (“CFCs”) for U.S. tax purposes. U.S. shareholders of CFCs are generally required to take into account as gross income in the U.S. certain passive income earned by the CFCs (“Subpart F income”) even if the income is not currently distributed. Temporary exceptions (the “active financing” and “look through” exceptions) were applicable for tax years beginning before January 1, 2015 to avoid the current recognition of Subpart F income derived in either the active conduct of a banking, financing, insurance or similar business or for certain payments between related corporations in different foreign jurisdictions. The U.S. Congress and the President have yet to enact extenders legislation as of June 30, 2015. Therefore, current tax expense has increased by an immaterial amount associated with the U.S. recognition of Subpart F income from our foreign operations. We will reverse any tax expense subject to the active financing and look through exceptions during the 2015 quarter extenders legislation is enacted, assuming the legislation is retroactive to January 1, 2015.

The U.S. Court of Federal Claims denied cross-motions for partial summary judgment on February 4, 2015, and ordered a trial on the previously taxed income issue in the case of Principal Life Insurance Company and Subsidiaries (“Principal Life”) v. the United States. Previously, in the same case, the court had ruled against Principal Life’s tax treatment of transactions involving the purchase and sale of principal-only certificates. These recent events caused re-evaluation of all our pending uncertain tax positions. The overall re-evaluation resulted in a $30.3 million reduction in net income in the first quarter of 2015. We do not believe there is a reasonable possibility the total amount of uncertain tax benefits will significantly increase or decrease in the next twelve months.

Unrecognized Tax Benefits

A summary of the changes in unrecognized tax benefits follows:

	For the six months ended			For the year ended
	June 30, 2015			December 31, 2014
	(in millions)
Balance at beginning of period	$	172.4		$	108.9
Additions based on tax positions related to the current year	6.5			12.9
Additions for tax positions of prior years	45.2			62.5
Reductions for tax positions related to the current year	(4.4		)	(8.4		)
Reductions for tax positions of prior years	(2.6		)	(0.2		)
Settlements	—			(3.3		)

Balance at end of period (1)	$	217.1		$	172.4

(1)

Of this amount, $80.1 million, if recognized, would reduce the 2015 effective income tax rate. We recognize interest and penalties related to uncertain tax positions in operating expenses.

As of June 30, 2015 and December 31, 2014, we had recognized $137.0 million and $100.4 million of accumulated pre-tax interest and penalties related to unrecognized tax benefits, respectively.