INCOME TAXES (Notes)

6 Months Ended

Jun. 30, 2021

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 six months ended June 30, 2021 were (311.7)% and 30.3%, respectively, compared to 41.4% and (12.4)% for the three and six months ended June 30, 2020, respectively. The Company's 2021 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 higher international tax rates and certain non-deductible expenses. The Company's 2020 effective tax rates differ from the U.S. federal statutory tax rate of 21%, primarily due to the non-deductible goodwill impairment charge related to OpenTable and KAYAK, certain non-deductible expenses relative to lower world-wide earnings and the valuation allowance recorded against the deferred tax asset generated from the impairment of a long-term investment, partially offset by the benefit of the Netherlands Innovation Box Tax and U.S. state tax benefits.

The Company incurred a pre-tax loss and recorded an income tax provision during the three months ended June 30, 2021, which resulted in a negative effective tax rate. The difference in the Company’s effective tax rate for the three months ended June 30, 2021, compared to the three months ended June 30, 2020, is primarily due to higher international tax rates and certain non-deductible expenses, partially offset by an increase in the benefit of the Netherlands Innovation Box Tax and a decrease in discrete U.S. tax expense related to unrealized gains on equity securities.

The Company incurred a pre-tax loss and recorded an income tax provision during the six months ended June 30, 2020, which resulted in a negative effective tax rate. The difference in the Company’s effective tax rate for the six months ended June 30, 2021, compared to the six months ended June 30, 2020, is primarily due to higher international tax rates and certain non-deductible expenses, partially offset by an increase in the benefit of the Netherlands Innovation Box Tax and a decrease in discrete U.S. tax expense related to unrealized gains on equity securities. In addition, the effective tax rate for the six months ended June 30, 2020 reflected the non-deductible goodwill impairment charge related to OpenTable and KAYAK.

During the three and six months ended June 30, 2021, a majority of the Company's income, and during the three and six months ended June 30, 2020, a portion 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 9% ("Innovation Box Tax") for periods beginning on or after January 1, 2021 rather than the Dutch statutory rate of 25%. Previously, the Innovation Box Tax rate had been 7%. A portion of Booking.com's earnings during the three and six months

ended June 30, 2021 and 2020 qualified for Innovation Box Tax treatment, which had a beneficial impact on the Company's effective tax rates for these periods.

The aggregate amount of unrecognized tax benefits for all matters at June 30, 2021 and December 31, 2020 was $102 million and $84 million, respectively. The unrecognized tax benefits, if recognized, would impact the effective tax rate. As of June 30, 2021 and December 31, 2020, total gross interest and penalties accrued was $32 million and $31 million, respectively. The majority of these unrecognized tax benefits are included in "Other long-term liabilities" and "Other assets, net" in the Consolidated Balance Sheets.