INCOME TAXES

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

International pre-tax income was $1.9 billion, $2.6 billion, and $5.7 billion for the years ended December 31, 2021, 2020, and 2019, respectively. U.S. pre-tax loss was $472 million and $2 billion for the years ended December 31, 2021 and 2020, respectively, and U.S. pre-tax income was $213 million for the year ended December 31, 2019.

Provision for Income Taxes

The income tax expense (benefit) for the year ended December 31, 2021 is as follows (in millions): 

	Current		Deferred		Total
International	$	665	$	(103)	$	562
U.S. Federal	68		(323)		(255)
U.S. State	12		(19)		(7)
Total	$	745	$	(445)	$	300

The income tax expense (benefit) for the year ended December 31, 2020 is as follows (in millions): 

	Current		Deferred		Total
International	$	320	$	(62)	$	258
U.S. Federal	(9)		296		287
U.S. State	(16)		(21)		(37)
Total	$	295	$	213	$	508

The income tax expense (benefit) for the year ended December 31, 2019 is as follows (in millions): 

	Current		Deferred		Total
International	$	915	$	(12)	$	903
U.S. Federal	22		166		188
U.S. State	34		(32)		2
Total	$	971	$	122	$	1,093

Income tax liabilities of $181 million and $174 million are included in "Accrued expenses and other current liabilities" in the Consolidated Balance Sheets at December 31, 2021 and 2020, respectively. In the first quarter of 2020, the Company made a prepayment of the Netherlands income taxes of 660 million Euros ($717 million) to earn prepayment discounts. The Company requested a refund of this amount from the Dutch tax authorities and it was received in April 2020. In the first quarter of 2021, the Company prepaid Netherlands income taxes of 149 million Euros ($175 million).

U.S. Tax Reform

In December 2017, the Tax Act was enacted into law in the United States. The Tax Act made significant changes to U.S. federal tax law, including a one-time deemed repatriation tax on accumulated unremitted international earnings, to be paid over eight years.

In 2018, the Company recorded an income tax benefit of $46 million to adjust its provisional income tax expense that was recorded during the year ended December 31, 2017 relating to the federal one-time deemed repatriation liability, as well as U.S. state income taxes and international withholding taxes associated with the mandatory deemed repatriation. In addition, the Company recorded an income tax benefit of $2 million in 2018 to adjust the remeasurement of its U.S. deferred tax assets and liabilities due to the reduction of the U.S. federal statutory tax rate that resulted from the Tax Act.

In 2019, as a result of additional technical guidance issued by U.S. federal and state tax authorities with respect to the Tax Act, the Company recorded an income tax benefit of $17 million to adjust its income tax expense that was recorded during the year ended December 31, 2017 relating to the federal one-time deemed repatriation liability, as well as U.S. state income taxes associated with the mandatory deemed repatriation.

In 2020, the Company recorded an income tax benefit of $8 million to adjust its income tax expense that was recorded during the year ended December 31, 2017 relating to the federal one-time deemed repatriation liability. This benefit was primarily due to additional tax credits. The Company utilized $108 million of deferred tax assets related to U.S. federal net operating losses ("NOLs") and $115 million of other tax credit carryforwards to reduce its transition tax liability as of December 31, 2021.

Under the Tax Act, the Company's future cash generated by the Company's international operations can generally be repatriated without further U.S. federal income tax, but will be subject to U.S. state income taxes and international withholding taxes, which have been accrued by the Company.

The Tax Act also introduced in 2018 a tax on 50% of GILTI, which is income determined to be in excess of a specified routine rate of return, and a base erosion and anti-abuse tax ("BEAT") aimed at preventing the erosion of the U.S. tax base. The Company has adopted an accounting policy to treat taxes on GILTI as period costs.

Deferred Income Taxes

The Company utilized $309 million of its U.S. NOLs to reduce its U.S. federal tax liability for the deemed repatriation tax. After utilization of available NOLs, at December 31, 2021, the Company had U.S. federal NOLs of $267 million, the majority of which do not have an expiration date, and U.S. state NOLs of $536 million, which mainly begin to expire in years December 31, 2032 and forward. In addition, at December 31, 2021, the Company had $700 million of non-U.S. NOLs, and $23 million of U.S. research tax credit and foreign tax credit carryforwards available to reduce future tax liabilities, the majority of which do not have an expiration date.

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. 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, 2021 and 2020 are as follows (in millions):

	2021		2020
Deferred tax assets/(liabilities):
Net operating loss carryforward — U.S.	$	88	$	67
Net operating loss carryforward — International	137		81
Accrued expenses	50		47
Stock-based compensation and other stock based payments	50		40
Foreign currency translation adjustment	48		29
Tax credits	19		9
Euro-denominated debt	—		77
Operating lease liabilities	38		43
Property and equipment	95		11
Other	11		—
Subtotal - deferred tax assets	536		404
Discount on convertible notes	(20)		(29)
Intangible assets and other	(192)		(119)
Euro-denominated debt	(20)		—
State income tax on accumulated unremitted international earnings	(8)		(5)
Unrealized gains on investments	(417)		(550)
Operating lease assets	(37)		(38)
Installment sale liability	(156)		(263)
Other	—		(14)
Subtotal - deferred tax liabilities	(850)		(1,018)
Valuation allowance on deferred tax assets	(37)		(58)
Net deferred tax liabilities (1)	$	(351)	$	(672)

  

(1)    Includes deferred tax assets of $554 million and $455 million at December 31, 2021 and 2020, respectively, reported in "Other assets, net" in the Consolidated Balance Sheets.

The valuation allowance on deferred tax assets at December 31, 2021 includes $26 million related to international operations and $11 million primarily related to certain U.S. federal capital loss carryforwards and Connecticut NOLs. The valuation allowance on deferred tax assets at December 31, 2020 includes $18 million related to international operations and $40 million primarily related to U.S. research credits, capital loss carryforwards, and Connecticut NOLs. 

The Company does not intend to indefinitely reinvest its international earnings that were subject to U.S. taxation pursuant to the mandatory deemed repatriation or subject to U.S. taxation as GILTI.

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

A significant portion of the Company's taxable earnings is generated in the Netherlands. 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 was 7%. A portion of Booking.com's earnings during the years ended December 31, 2021, 2020, and 2019 qualified 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 21% for the years ended December 31, 2021, 2020, and 2019 as a result of the following items (in millions):  

	2021		2020		2019
Income tax expense at U.S. federal statutory rate	$	308	$	119	$	1,251
Adjustment due to:
Foreign rate differential	137		55		210
Innovation Box Tax benefit	(230)		(79)		(443)
Goodwill impairment	—		228		—
Stock-based compensation	37		32		23
Federal GILTI	17		73		36
State income tax (benefit) expense	(6)		(31)		9
Valuation allowance	(19)		36		1
Uncertain tax positions	39		64		11
Tax Act - U.S. transition tax benefit and other transition impacts	—		(8)		(17)
Other	17		19		12
Income tax expense	$	300	$	508	$	1,093

Uncertain Tax Positions

The following is a reconciliation of the total beginning and ending amount of unrecognized tax benefits (in millions): 

	2021		2020		2019
Unrecognized tax benefit — January 1	$	84	$	56	$	45
Gross increases — tax positions in current period	14		2		3
Gross increases — tax positions in prior periods	44		48		11
Gross decreases — tax positions in prior periods	(19)		(11)		(3)
Reduction due to settlements during the current period	(3)		(11)		—
Unrecognized tax benefit — December 31	$	120	$	84	$	56

The increase in unrecognized tax benefits is principally related to transfer pricing, as well as Booking.com’s Italian tax disputes (see Note 16), the majority of which is included in “Other long-term liabilities” in the Consolidated Balance Sheets for the years ended December 31, 2021 and 2020. The remaining unrecognized tax benefits are primarily included in "Other long-term liabilities" and "Other assets, net" in the Consolidated Balance Sheets for the years ended December 31, 2021 and 2020. The unrecognized tax benefits, if recognized, would affect the effective tax rate. The Company does not expect further significant changes in the amount of unrecognized tax benefits during the next twelve months. As of December 31, 2021 and 2020, total gross interest and penalties accrued was $30 million and $31 million, respectively.

The Company's major taxing jurisdictions include: the Netherlands, United States, Singapore, and United Kingdom. The statutes of limitations that remain open related to these major tax jurisdictions are: the Company's Netherlands returns for 2014 and forward, U.S. federal returns for 2017 and forward, Singapore returns from 2017 and forward, and U.K. returns for 2018 and forward. The Company’s 2017 and 2018 U.S. federal income tax returns are currently under audit by the Internal Revenue Service. See Note 16 for more information regarding tax contingencies.