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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | NOTE 11 — Income Taxes The Tax Act was enacted in December 2017. The Tax Act significantly changes U.S. tax law by, among other things, lowering U.S. corporate income tax rates, implementing a territorial tax system and imposing a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. The Tax Act reduces the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Act, we revalued our ending net deferred tax liabilities at December 31, 2017 and recognized a provisional $158 million tax benefit. The Tax Act provided for a one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiary earnings and profits (“E&P”). We have recognized a provisional $144 million of income tax expense related to the transition tax. After utilization of existing net operating loss and tax credits carryforwards, we expect to pay minimal U.S. federal cash taxes on the deemed repatriation. While the Tax Act provides for a modified territorial tax system, beginning in 2018, global intangible low-taxed income (“GILTI”) provisions will be applied providing an incremental tax on low taxed foreign income. The GILTI provisions require us to include in our U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. Under U.S. GAAP, we are required to make an accounting policy election to either (1) treat taxes due related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factor such amounts into our measurement of our deferred taxes (the “deferred method”). We are continuing to evaluate the GILTI tax rules and have not yet adopted our policy to account for the related impacts. The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act and allows the registrant to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. We have recognized a net tax benefit of $14 million for the provisional tax impacts related to the one-time transition tax and the revaluation of deferred tax balances and included these estimates in our consolidated financial statements for the year ended December 31, 2017. We are in the process of analyzing the impact of the various provisions of the Tax Act. The ultimate impact may materially differ from these provisional amounts due to, among other things, additional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a result of the Tax Act. We expect to complete our analysis within the measurement period in accordance with SAB 118. The following table summarizes our U.S. and foreign income (loss) before income taxes:
| Year Ended December 31,
| 2017 |  | 2016 |  | 2015
| (In thousands)
U.S. | $ | (44,867 | ) |  | $ | (47,205 | ) |  | $ | 24,397 |
Foreign | 461,631 |  |  | 323,805 |  |  | 901,565 |
Total | $ | 416,764 |  |  | $ | 276,600 |  |  | $ | 925,962 |
Provision for Income Taxes The following table summarizes our provision for income taxes:
| Year Ended December 31,
| 2017 |  | 2016 |  | 2015
|  |  | (In thousands) |  |
Current income tax expense: |  |  |  |  |
Federal | $ | 12,671 |  |  | $ | (41,418 | ) |  | $ | 154,050 |
State | 5,862 |  |  | 5,875 |  |  | 1,440 |
Foreign | 130,180 |  |  | 64,946 |  |  | 69,359 |
Current income tax expense | 148,713 |  |  | 29,403 |  |  | 224,849 |
Deferred income tax (benefit) expense: |  |  |  |  |
Federal | (93,842 | ) |  | (5,166 | ) |  | (6,865 | )
State | (891 | ) |  | (2,863 | ) |  | 2,156 |
Foreign | (8,575 | ) |  | (6,059 | ) |  | (16,926 | )
Deferred income tax (benefit) expense: | (103,308 | ) |  | (14,088 | ) |  | (21,635 | )
Income tax expense | $ | 45,405 |  |  | $ | 15,315 |  |  | $ | 203,214 |
We reduced our current income tax payable by $100 million, $76 million and $130 million for the years ended December 31, 2017, 2016 and 2015 for tax deductions attributable to stock-based compensation. Deferred Income Taxes As of December 31, 2017 and 2016, the significant components of our deferred tax assets and deferred tax liabilities were as follows:
| December 31,
| 2017 |  | 2016
| (In thousands)
Deferred tax assets: |  |  |
Provision for accrued expenses | $ | 49,526 |  |  | $ | 94,031 |
Loyalty rewards reserve | 131,248 |  |  | 163,410 |
Occupancy tax reserve | 11,017 |  |  | 27,814 |
Net operating loss and tax credit carryforwards | 121,896 |  |  | 114,470 |
Stock-based compensation | 51,706 |  |  | 81,221 |
Other | 36,187 |  |  | 31,569 |
Total deferred tax assets | 401,580 |  |  | 512,515 |
Less valuation allowance | (76,280 | ) |  | (65,516 | )
Net deferred tax assets | $ | 325,300 |  |  | $ | 446,999 |
Deferred tax liabilities: |  |  |
Prepaid merchant bookings and prepaid expenses | $ | (1,372 | ) |  | $ | (20,289 | )
Goodwill and intangible assets | (499,190 | ) |  | (718,810 | )
Property and equipment | (130,736 | ) |  | (152,550 | )
Other | (4,674 | ) |  | (16,662 | )
Total deferred tax liabilities | $ | (635,972 | ) |  | $ | (908,311 | )
Net deferred tax liability | $ | (310,672 | ) |  | $ | (461,312 | )
As of December 31, 2017, we had federal, state, and foreign net operating loss carryforwards (“NOLs”) of approximately $65 million, $210 million and $370 million. If not utilized, the federal and state NOLs will expire at various times between 2018 and 2037. Foreign NOLs of $253 million may be carried forward indefinitely, and foreign NOLs of $117 million will expire at various times between 2018 and 2024. As of December 31, 2017, we had a valuation allowance of approximately $76 million related to certain NOL carryforwards for which it is more likely than not the tax benefit will not be realized. The valuation allowance increased by $10 million from the amount recorded as of December 31, 2016 primarily due to the historic NOL carryforwards of acquired entities in 2017 as well as foreign net operating losses for which realization is not certain. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period change, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth. Due to the one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiary earnings and profits, all previously unremitted earnings for which no U.S. deferred tax liability had been accrued have now been subjected to U.S. federal income tax. To the extent we repatriate these earnings to the United States, we estimate we will not incur significant additional taxes related to such amounts, however our estimates are provisional and subject to further analysis. Reconciliation of U.S. Federal Statutory Income Tax Rate to Effective Income Tax Rate A reconciliation of amounts computed by applying the federal statutory income tax rate to income before income taxes to total income tax expense is as follows:
| Year Ended December 31,
| 2017 |  | 2016 |  | 2015
|  |  | (In thousands) |  |
Income tax expense at the federal statutory rate of 35% | $ | 145,867 |  |  | $ | 96,810 |  |  | $ | 324,087 |
Foreign tax rate differential | (81,509 | ) |  | (66,947 | ) |  | (162,784 | )
Unrecognized tax benefits and related interest | 27,690 |  |  | 33,170 |  |  | 33,362 |
Change in valuation allowance | 3,686 |  |  | (13,924 | ) |  | 27,320 |
Return to provision true-ups | 686 |  |  | (14,420 | ) |  | (8,875 | )
Pay-to-play penalties | — |  |  | — |  |  | (11,222 | )
Acquisition related costs | 1,554 |  |  | 1,611 |  |  | 12,545 |
Federal research and development credit | (16,000 | ) |  | (15,000 | ) |  | (11,500 | )
trivago stock-based-compensation | 5,011 |  |  | 16,956 |  |  | — |
Excess tax benefits related to stock-based compensation | (59,668 | ) |  | (39,751 | ) |  | — |
Tax Act transition tax | 144,167 |  |  | — |  |  | — |
U.S. statutory tax rate change | (158,286 | ) |  | — |  |  | — |
Other, net | 32,207 |  |  | 16,810 |  |  | 281 |
Income tax expense | $ | 45,405 |  |  | $ | 15,315 |  |  | $ | 203,214 |
Our effective tax rate in 2017, 2016 and 2015 was lower than the 35% federal statutory income tax rate due to earnings in foreign jurisdictions outside of the United States, primarily Switzerland, where the statutory income tax rate is lower. In addition, excess tax benefits relating to share-based payments also decrease our effective tax rate in 2017 and 2016. The increase in our effective tax rate for 2017 compared to 2016 was primarily due to one-time tax benefits in the prior year period including release of a valuation allowance and return to provision true-ups, as well as an increase in losses generated in foreign jurisdictions at tax rates below the 35% federal statutory rate. The effects of the provisional income inclusion for the deemed repatriation transition tax pursuant to the Tax Act were negated by the benefit of the provisional remeasurement of our net deferred tax liability. Uncertain Tax Positions A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:
| 2017 |  | 2016 |  | 2015
|  |  | (In thousands) |  |
Balance, beginning of year | $ | 220,532 |  |  | $ | 171,177 |  |  | $ | 110,561 |
Increases to tax positions related to the current year | 35,211 |  |  | 42,877 |  |  | 33,880 |
Increases to tax positions related to prior years | 3,544 |  |  | 8,124 |  |  | 26,219 |
Decreases to tax positions related to prior years | (1,069 | ) |  | (2,262 | ) |  | — |
Reductions due to lapsed statute of limitations | (2,783 | ) |  | (4,688 | ) |  | (2,525 | )
Settlements during current year | (1,213 | ) |  | — |  |  | (100 | )
Interest and penalties | 6,697 |  |  | 5,304 |  |  | 3,142 |
Balance, end of year | $ | 260,919 |  |  | $ | 220,532 |  |  | $ | 171,177 |
As of December 31, 2017, we had $261 million of gross unrecognized tax benefits, $155 million of which, if recognized, would affect the effective tax rate. As of December 31, 2016, we had $221 million of gross unrecognized tax benefits, $181 million of which, if recognized, would affect the effective tax rate. As of December 31, 2017 and 2016, total gross interest and penalties accrued was $22 million and $15 million, respectively. We recognized interest (benefit) expense in 2017, 2016 and 2015 of $7 million, $5 million and $3 million in connection with our unrecognized tax benefits. The Company is routinely under audit by federal, state, local and foreign income tax authorities. These audits include questioning the timing and the amount of income and deductions, and the allocation of income and deductions among various tax jurisdictions. The Internal Revenue Service ("IRS") is currently examining Expedia’s U.S. consolidated federal income tax returns for the periods ended December 31, 2009 through December 31, 2013. As of December 31, 2017, for the Expedia, Inc. & Subsidiaries group, statute of limitations for tax years 2009 through 2016 remain open to examination in the federal jurisdiction and most state jurisdictions. For the HomeAway and Orbitz groups, statutes of limitations for tax years 2001 through 2015 remain open to examination in the federal and most state jurisdictions due to net operating loss carryforwards. During first quarter of 2017, the IRS issued proposed adjustments related to transfer pricing with our foreign subsidiaries for our 2009 to 2010 audit cycle. The proposed adjustments would increase our U.S. taxable income by $105 million, which would result in federal tax expense of approximately $37 million, subject to interest. We do not agree with the position of the IRS and are formally protesting the IRS position.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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