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Income Taxes
3 Months Ended
Sep. 30, 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 September 30, 2012, we had $54.4 million of gross unrecognized tax benefits of which $13.2 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 and taxation of certain investments. The $0.6 million net increase in gross unrecognized tax benefits is primarily attributable to changes in reserves for prior year tax positions in the United States. As of September 30, 2012, we anticipate that the liability for unrecognized tax benefits for uncertain tax positions could decrease by approximately $5.0 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 September 30, 2012, $6.5 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 through September 30, 2012 and 2011 includes expense of approximately $0.4 million and $0.3 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 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 months ended September 30, 2012 and 2011, we had effective income tax rates of 44.9% and 32.1%, respectively. The tax rate for the three months ended September 30, 2012 was higher than the expected statutory rate primarily as a result of a $2.0 million quarter-specific expense associated with the limitation of certain compensation-related deductions as well as the effect of a higher projected annual effective tax rate for our fiscal year ending June 30, 2013 ("Fiscal Year 2013"). The Fiscal Year 2013 projected annual effective tax rate is higher than our effective tax rate for the fiscal year ended June 30, 2012 ("Fiscal Year 2012") primarily because of a projected increase in income that is subject to tax in the United States as compared to lower rate foreign jurisdictions. The increase in income subject to United States taxation is due in part to the expiration of of certain Internal Revenue Code provisions.
The tax rates for the three months ended September 30, 2011 was lower than the expected statutory rate primarily as a result of a $0.9 million quarter specific benefit related to a reduction in the statutory tax rate in the United Kingdom as well as a decrease in the projected annual effective tax rate for Fiscal Year 2012. The projected annual effective tax rate was reduced because of the favorable effect of statutory rates applicable to income earned outside the United States.