INCOME TAXES

6 Months Ended

Jun. 30, 2023

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, 2023 were 20.3% and 19.0%, respectively, compared to 25.1% and 46.8% for the three and six months ended June 30, 2022, respectively. The Company's 2023 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 2022 effective tax rates differed from the U.S. federal statutory tax rate of 21%, primarily due to higher international tax rates, a 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.

The Company's effective tax rates for the three and six months ended June 30, 2023 were lower than the effective tax rates for the three and six months ended June 30, 2022, primarily due to a lower valuation allowance related to certain unrealized losses on equity securities, lower international tax rates, and lower U.S. federal and state tax associated with the Company's international earnings, partially offset by a decrease in the benefit of the Netherlands Innovation Box Tax.

During the three and six months ended June 30, 2023 and 2022, 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 of 25.8%. A portion of Booking.com's earnings during the three and six months ended June 30, 2023 and 2022 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, 2023 and December 31, 2022 was $59 million and $184 million, respectively. The unrecognized tax benefits, if recognized, would impact the effective tax rate. As of June 30, 2023 and December 31, 2022, total gross interest and penalties accrued was $7 million and $43 million, respectively. The decrease in unrecognized tax benefits, as well as gross interest and penalties, primarily relates to the settlement by Booking.com of certain French tax matters. The majority of unrecognized tax benefits are included in "Other assets, net" and "Accrued expenses and other current liabilities" in the Consolidated Balance Sheet as of June 30, 2023. It is reasonably possible that the balance of gross unrecognized tax benefits could change over the next 12 months.