8. Income Taxes

Income taxes were a benefit of $13.3 million on a pretax loss of $2.1 million and an expense of $76.9 million on pretax income of $282.3 million for the three and nine months ended September 30, 2014, respectively, as compared to an expense of $45.5 million on pretax income of $187.4 million and an expense of $133.8 million on pretax income of $537.8 million for the same periods in 2013, respectively. The income tax benefit recognized during the three months ended September 30, 2014 results primarily from applying a reduced estimated annual effective income tax rate to year-to-date pre-tax income and incorporating benefits from discrete events. The estimated annual effective income tax rate as of the third quarter was reduced from the estimated annual effective income tax rate as of the second quarter primarily as a result of the ability to fully realize a tax benefit relating to Herbalife Venezuela’s foreign exchange losses. The effective income tax rate was 647.9% and 27.2% for the three and nine months ended September 30, 2014, respectively, as compared to 24.3% and 24.9% for the same periods in 2013. The Company recorded a tax benefit in excess of the third quarter pretax loss primarily as a result of the application of the reduced estimated annual effective income tax rate to the year to date pretax income. This resulted in a disproportionately large effective tax rate for the quarter as compared to the same period in 2013. The increase to the effective tax rate for the nine months ended September 30, 2014, as compared to the same period in 2013, is primarily due to the decrease in net benefits from discrete events, principally related to favorable tax audit settlements in the comparative 2013 period, and the inability to realize a tax benefit from Herbalife Ltd.’s interest expense, partially offset by the ability to fully realize a tax benefit resulting from Herbalife Venezuela’s foreign exchange loss and the impact of changes in the geographic mix of the Company’s income.

As of September 30, 2014, the total amount of unrecognized tax benefits, including related interest and penalties was $44.3 million. If the total amount of unrecognized tax benefits was recognized, $36.1 million of unrecognized tax benefits, $5.0 million of interest and $1.0 million of penalties would impact the effective tax rate.

The Company believes that it is reasonably possible that the amount of unrecognized tax benefits could decrease by up to approximately $10.6 million within the next twelve months. Of this possible decrease, $6.0 million would be due to the settlement of audits or resolution of administrative or judicial proceedings. The remaining possible decrease of $4.6 million would be due to the expiration of statute of limitations in various jurisdictions.