INCOME TAXES

3 Months Ended

Mar. 31, 2022

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 rate for the three months ended March 31, 2022 was 17.6%, compared to 80.2% for the three months ended March 31, 2021. The Company's 2022 effective tax rate differs from the U.S. federal statutory tax rate of 21%, primarily due to higher international tax rates, valuation allowance related to certain unrealized losses on equity securities, and certain non-deductible expenses, partially offset by the benefit of the Netherlands Innovation Box Tax (discussed below).

The Company's 2021 effective tax rate differs from the U.S. federal statutory tax rate of 21%, primarily due to higher international tax rates and certain non-deductible expenses, partially offset by the benefit of the Netherlands Innovation Box Tax.

The Company’s effective tax rate for the three months ended March 31, 2022 was lower than the three months ended March 31, 2021, primarily due to lower discrete U.S. tax expense related to unrealized gains on equity securities, lower international tax rates and certain lower non-deductible expenses, partially offset by a decrease in the benefit of the Netherlands Innovation Box Tax.

During the three months ended March 31, 2022 and 2021, a 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 9% ("Innovation Box Tax") rather than the Dutch statutory rate. Effective January 1, 2022, the Netherlands corporate income tax rate increased from 25% to 25.8%. A portion of Booking.com's earnings during the three months ended March 31, 2022 and 2021 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 March 31, 2022 and December 31, 2021 was $119 million and $120 million, respectively. The unrecognized tax benefits, if recognized, would impact the effective tax rate. As of March 31, 2022 and December 31, 2021, total gross interest and penalties accrued was $30 million. The majority of these unrecognized tax benefits are included in "Other long-term liabilities" and "Other assets, net" in the Consolidated Balance Sheets.