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Income Taxes
6 Months Ended
Dec. 31, 2016
Income Tax Disclosure [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. Our quarterly effective income tax rate reflects 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.
For the three months ended December 31, 2016 and 2015, we had effective income tax rates of 44.8% and 24.8%, respectively. The tax rate for the three months ended December 31, 2016 was higher than the expected statutory rate of 35% primarily due to the non-deductibility of the unrealized loss on the fair value adjustment of $20.3 million in connection with the accelerated share repurchase program, which increased the tax rate by15.2%, and was partially offset by the favorable effect of statutory tax rates applicable to income earned outside the United States on the projected annual effective tax rate. The tax rate for the three months ended December 31, 2015 was lower than the expected statutory rate of 35% primarily as a result of the favorable effect of statutory tax rates applicable to income earned outside the United States on the projected annual effective tax rate.
For the six months ended December 31, 2016 and 2015, we had effective income tax rates of 33.3% and 27.0%, 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 tax rates applicable to income earned outside the United States on the projected annual effective tax rate. The tax rate for the six months ended December 31, 2016, benefited 2.5% from the adoption of ASU 2016-09 as discussed in Note 1 to these condensed consolidated financial statements, and increased by 6.1% due to the non-deductibility of the unrealized loss on the fair value adjustment of $20.3 million in connection with accelerated share repurchase program.
As of December 31, 2016, we had $28.9 million of gross unrecognized tax benefits, of which $18.7 million would impact the effective tax rate if recognized. As of June 30, 2016, we had $29.5 million of gross unrecognized tax benefits, of which $18.9 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 $0.7 million net decrease in gross unrecognized tax benefits is primarily attributable to currency translation adjustments.
As of December 31, 2016, we do not anticipate that the liability for unrecognized tax benefits for uncertain tax positions could decrease over the next 12 months primarily as a result of the expiration of statutes of limitations and settlements with tax authorities.
We recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2016 and June 30, 2016, $3.5 million and $3.4 million, respectively, of gross interest and penalties were included in the liability for unrecognized tax benefits. For the six month periods ended December 31, 2016 and 2015, expenses of $0.2 million and $0.4 million, respectively, were 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 states, local and foreign jurisdictions. Our U.S. federal, state and local income tax returns for the tax years 2005 to 2015 remain open for examination by the relevant tax authority. In foreign tax jurisdictions, the Company has open tax years dating back to 2002. The extended open tax years for these jurisdictions resulted from tax attributes carryover, including net operating losses or tax credits from those tax years.
We are subject to on-going tax audits in various jurisdictions. Tax authorities may disagree with certain positions we have taken and assess additional taxes. We regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax provision and have established contingency reserves for material, known tax exposures.