INCOME TAXES

9 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Income tax expense consists of U.S. and international income taxes, determined using an estimate of the Company's annual effective tax rate, which is based upon the applicable tax rates and tax laws of the countries in which the income is generated. A deferred tax liability is recognized for all taxable temporary differences, and a deferred tax asset is recognized for all deductible temporary differences and operating loss and tax credit carryforwards. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset 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 Company's effective tax rates for the three and nine months ended September 30, 2019 were 17.5% and 18.6%, respectively, compared to 21.1% and 20.2% for the three and nine months ended September 30, 2018, respectively. The Company's 2019 effective tax rates differ from the U.S. federal statutory tax rate of 21%, primarily due to the benefit of the Netherlands Innovation Box Tax (discussed below), partially offset by the effect of higher international tax rates. The Company's 2018 effective tax rates differ from the U.S. federal statutory tax rate of 21%, primarily due to the benefit of the Netherlands Innovation Box Tax, U.S. state tax rate changes that resulted in a net decrease to deferred tax liabilities associated with acquired intangible assets and excess tax benefits recognized from the vesting of equity awards, partially offset by the effect of higher international tax rates and U.S. federal and state tax associated with the Company's international earnings resulting from the enactment of the U.S. Tax Cuts and Jobs Act (the "Tax Act").

The Company's effective tax rates were lower for the three and nine months ended September 30, 2019, compared to the three and nine months ended September 30, 2018, primarily as a result of lower U.S. federal and state tax associated with the Company’s current year international earnings resulting from the enactment of the Tax Act and discrete tax benefits associated with U.S. federal tax credits.

During the three and nine months ended September 30, 2019 and 2018, a substantial majority of the Company's income was reported in the Netherlands, where Booking.com is based. According to Dutch corporate income tax law, income generated from qualifying innovative activities is taxed at a rate of 7% ("Innovation Box Tax") rather than the Dutch statutory rate of 25%. A portion of Booking.com's earnings during the three and nine months ended September 30, 2019 and 2018 qualified for Innovation Box Tax treatment, which had a significant beneficial impact on the Company's effective tax rates for those periods.

During the three months ended September 30, 2019, the Company recorded a deferred tax asset of $377 million, which is included in "Other assets" in the Consolidated Balance Sheet, and a deferred tax liability of $361 million related to an internal restructuring.