INCOME TAXES

International pre-tax income was $3.7 billion, $3.1 billion and $2.9 billion for the years ended December 31, 2016, 2015 and 2014, respectively. U.S. pre-tax loss was $983.1 million for the year ended December 31, 2016 and U.S. pre-tax income was $35.4 million and $98.4 million for the years ended December 31, 2015 and 2014, respectively.

Provision for Income Taxes

The income tax expense (benefit) for the year ended December 31, 2016 is as follows (in thousands):



	Current			Deferred			Total
International	$	627,718		$	(14,359	)	$	613,359
U.S. Federal	63,613			(32,405		)	31,208
U.S. State	(1,175		)	(65,141		)	(66,316		)
Total	$	690,156		$	(111,905	)	$	578,251

The income tax expense (benefit) for the year ended December 31, 2015 is as follows (in thousands):



	Current		Deferred			Total
International	$	526,052	$	(17,789	)	$	508,263
U.S. Federal	88,237		(68,696		)	19,541
U.S. State	24,006		25,150			49,156
Total	$	638,295	$	(61,335	)	$	576,960

The income tax expense (benefit) for the year ended December 31, 2014 is as follows (in thousands):



	Current		Deferred			Total
International	$	496,719	$	(10,613	)	$	486,106
U.S. Federal	10,316		47,847			58,163
U.S. State	28,953		(5,527		)	23,426
Total	$	535,988	$	31,707		$	567,695

The U.S. pre-tax loss for the year ended December 31, 2016 compared to the pre-tax income for the year December 31, 2015 is primarily due to the impairment charge for goodwill of $940.7 million related to OpenTable (see Note 9) and increased interest expense in 2016. Income tax expense on the Company’s U.S. pre-tax loss for the year ended December 31, 2016 includes the impact of the non-deductible impairment charge of OpenTable goodwill, U.S. income tax on the Company’s international interest income, which increased during the year, and the tax benefits arising from U.S. state tax law changes resulting in a net decrease to deferred tax liabilities, mostly associated with acquired intangible assets.

The U.S. pre-tax income for the year ended December 31, 2015, decreased compared to the year ended December 31, 2014, primarily due to higher interest expense and increased intangible amortization from the OpenTable acquisition. Income tax expense on the Company's U.S. pre-tax income for the year ended December 31, 2015, includes the impact of increases in state income tax rates on the Company's deferred tax liabilities and U.S. income tax on the Company's international interest income which increased during the year.

Deferred Income Taxes

At December 31, 2016, the Company had approximately $727.8 million of available net operating loss carryforwards ("NOLs") for U.S. federal income tax purposes, comprised of approximately $22.8 million of NOLs generated from operating losses and approximately $705.0 million of NOLs generated from equity-related transactions, including equity-based compensation and stock warrants. The NOLs mainly expire from December 31, 2019 to December 31, 2021 and an additional $207 million expires at December 31, 2033. The Company also had approximately $583.9 million of U.S. state NOLs, the majority of which were generated from equity related transactions and mainly expire between December 31, 2020 and December 31, 2034. In addition, the Company has $133.5 million of non-U.S. NOLs, of which $66.1 million expire between December 31, 2019 and December 31, 2023. Further at December 31, 2016, the Company had approximately $34.3 million of U.S. research tax credit carryforwards, subject to annual limitation, that mainly expire between December 31, 2028 and December 31, 2034, and $26.0 million of federal alternative minimum tax credit carryforwards, that do not expire, that are available to reduce future tax liabilities.

The utilization of these NOLs, allowances and credits is dependent upon the Company's ability to generate sufficient future taxable income and the tax laws in the jurisdictions where the losses were generated. Because of a 2016 change in state tax law, the Company estimates that approximately $230 million of unrecognized state NOLs ($20.7 million tax-effected) generated from equity-related transactions will expire before the Company has the capacity to utilize them. The Company periodically evaluates the likelihood of the realization of deferred tax assets, and reduces the carrying amount of these deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized. The Company considers many factors when assessing the likelihood of future realization of the deferred tax assets, including its recent cumulative earnings experience by taxing jurisdiction, expectations of future income, tax planning strategies, the carryforward periods available for tax reporting purposes, and other relevant factors.

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities at December 31, 2016 and 2015 are as follows (in thousands):



	2016			2015
Deferred tax assets/(liabilities):
Net operating loss carryforward — U.S.	$	15,977		$	59,220
Net operating loss carryforward — International	18,371			18,153
Accrued expenses	72,631			61,703
Stock-based compensation and other stock based payments	60,937			77,761
Other	—			8,001
Subtotal	167,916			224,838

Discount on convertible notes	(77,845		)	(112,886		)
Intangible assets and other	(740,329		)	(822,685		)
Euro denominated debt	(117,737		)	(92,230		)
Fixed assets	(2,245		)	(3,658		)
Other	(3,958		)	—
Less valuation allowance on deferred tax assets	(24,475		)	(64,845		)
Net deferred tax liabilities⁽¹⁾	$	(798,673	)	$	(871,466	)

(1) Includes deferred tax assets of $23.7 million and $21.1 million as of December 31, 2016 and 2015, respectively, reported in "Other assets" in the Consolidated Balance Sheets.

The valuation allowance on deferred tax assets of $24.5 million at December 31, 2016 includes $4.1 million related to U.S. federal net operating loss carryforwards derived from equity transactions, $18.5 million related to international operations and $1.9 million related to U.S. research credits and capital loss carryforwards. During the year ended December 31, 2016, the Company utilized the majority of its pre-2006 federal equity NOLs resulting in a $40 million decrease in the valuation allowance. Additionally, since January 1, 2006, the Company has generated tax benefits arising from equity transactions that are not included in the deferred tax table above in accordance with current accounting principles. Pursuant to the adoption of an accounting update issued in March 2016, the Company will record a deferred tax asset for approximately $300 million, net of valuation allowances, with a corresponding credit to retained earnings on January 1, 2017, representing the previously unrecognized tax benefit related to equity transactions (see Note 2).

It is the practice and intention of the Company to indefinitely reinvest the unremitted earnings of its international subsidiaries outside of the United States, therefore, at December 31, 2016, no provision has been made for U.S. taxes on approximately $13.0 billion of cumulative unremitted international earnings. The Company estimates that the deferred tax liability it would record if such earnings were not indefinitely reinvested internationally is approximately $2.3 billion as of December 31, 2016.

Reconciliation of U.S. Federal Statutory Income Tax Rate to Effective Income Tax Rate

A significant portion of the Company's taxable earnings are generated in the Netherlands. According to Dutch corporate income tax law, income generated from qualifying innovative activities is taxed at a rate of 5% ("Innovation Box Tax") rather than the Dutch statutory rate of 25%. A portion of Booking.com's earnings during the years ended December 31, 2016, 2015 and 2014 qualifies for Innovation Box Tax treatment, which had a significant beneficial impact on the Company's effective tax rate for those years.

The effective income tax rate of the Company is different from the amount computed using the expected U.S. statutory federal rate of 35% as a result of the following items (in thousands):



	2016			2015			2014
Income tax expense at federal statutory rate	$	949,633		$	1,094,912		$	1,046,307
Adjustment due to:
Foreign rate differential	(377,542		)	(316,078		)	(289,692		)
Innovation Box Tax benefit	(324,633		)	(260,193		)	(233,545		)
Impairment of goodwill and cost-method investment	343,484			—			—
Other	(12,691		)	58,319			44,625
Income tax expense	$	578,251		$	576,960		$	567,695

Uncertain Tax Positions

See Note 2 for the Company's accounting policy on uncertain tax positions. The following is a reconciliation of the total beginning and ending amount of unrecognized tax benefits (in thousands):



	2016			2015			2014
Unrecognized tax benefit — January 1	$	42,594		$	52,356		$	22,104
Gross increases — tax positions in current period	2,468			3,411			9,305
Gross increases — tax positions in prior periods	859			4,305			6,569
Increase acquired in business combination	—			—			17,767
Gross decreases — tax positions in prior periods	(217		)	(10,365		)	(2,164		)
Reduction due to lapse in statute of limitations	(9,077		)	(7,113		)	(346		)
Reduction due to settlements during the current period	(3,912		)	—			(879		)
Unrecognized tax benefit — December 31	$	32,715		$	42,594		$	52,356

The unrecognized tax benefits are included in "Other long-term liabilities" and "Deferred income taxes" in the Consolidated Balance Sheets for the years ended December 31, 2016, 2015 and 2014. The Company does not expect further significant changes in the amount of unrecognized tax benefits during the next twelve months.

The Company's Netherlands, U.S. federal, Connecticut, Singapore, and U.K. income tax returns, constituting the returns of the major taxing jurisdictions, are subject to examination by the taxing authorities as prescribed by applicable statute. The statute of limitations remains open for: the Company's Netherlands returns from 2010 and forward; the Company's Singapore returns from 2012 and forward; the Company's U.S. Federal and Connecticut returns from 2013 and forward; and the Company's U.K. returns for the tax years 2008, 2015, and 2016. No income tax waivers have been executed that would extend the period subject to examination beyond the period prescribed by statute in the major taxing jurisdictions in which the company is a taxpayer. See Note 14 for more information regarding tax contingencies.