Expedia 2013 Annual Report Download - page 58

timing between financial statement and income tax reporting. Accordingly, we determine the deferred tax asset
or liability for each temporary difference based on the enacted tax rates expected to be in effect when we realize
the underlying items of income and expense. We consider many factors when assessing the likelihood of future
realization of our deferred tax assets, including our recent earnings experience by jurisdiction, expectations of
future taxable income, and the carryforward periods available to us for tax reporting purposes, as well as other
relevant factors. We may establish a valuation allowance to reduce deferred tax assets to the amount we believe
is more likely than not to be realized. Due to inherent complexities arising from the nature of our businesses,
future changes in income tax law, tax sharing agreements or variances between our actual and anticipated
operating results, we make certain judgments and estimates. Therefore, actual income taxes could materially vary
from these estimates.
We record liabilities to address uncertain tax positions we have taken in previously filed tax returns or that
we expect to take in a future tax return. The determination for required liabilities is based upon an analysis of
each individual tax position, taking into consideration whether it is more likely than not that our tax position,
based on technical merits, will be sustained upon examination. For those positions for which we conclude it is
more likely than not it will be sustained, we recognize the largest amount of tax benefit that is greater than
50 percent likely of being realized upon ultimate settlement with the taxing authority. The difference between the
amount recognized and the total tax position is recorded as a liability. The ultimate resolution of these tax
positions may be greater or less than the liabilities recorded.
Other Long-Term Liabilities
Various Legal and Tax Contingencies. We record liabilities to address potential exposures related to
business and tax positions we have taken that have been or could be challenged by taxing authorities. In addition,
we record liabilities associated with legal proceedings and lawsuits. These liabilities are recorded when the
likelihood of payment is probable and the amounts can be reasonably estimated. The determination for required
liabilities is based upon analysis of each individual tax issue, or legal proceeding, taking into consideration the
likelihood of adverse judgments and the range of possible loss. In addition, our analysis may be based on
discussions with outside legal counsel. The ultimate resolution of these potential tax exposures and legal
proceedings may be greater or less than the liabilities recorded.
Occupancy Tax. Some states and localities impose a transient occupancy or accommodation tax on the use
or occupancy of hotel accommodations. Generally, hotels collect taxes based on the rate paid to the hotel and
remit these taxes to the various tax authorities. When a customer books a room through one of our travel
services, we collect a tax recovery charge from the customer which we pay to the hotel. We calculate the tax
recovery charge by applying the occupancy tax rate supplied to us by the hotels to the amount that the hotel has
agreed to receive for the rental of the room by the consumer. In all but a limited number of jurisdictions, we do
not collect or remit occupancy taxes, nor do we pay occupancy taxes to the hotel operator, on the portion of the
customer payment we retain. Some jurisdictions have questioned our practice in this regard. While the applicable
tax provisions vary among the jurisdictions, we generally believe that we are not required to pay such occupancy
taxes. We are engaged in discussions with tax authorities in various jurisdictions to resolve this issue. Some tax
authorities have brought lawsuits or have levied assessments asserting that we are required to collect and remit
occupancy tax. The ultimate resolution in all jurisdictions cannot be determined at this time. Certain jurisdictions
may require us to pay tax assessments, including occupancy and other transactional tax assessments, prior to
contesting any such assessments.
We have established a reserve for the potential settlement of issues related to hotel occupancy taxes for prior
and current periods, consistent with applicable accounting principles and in light of all current facts and
circumstances. A variety of factors could affect the amount of the liability (both past and future), which factors
include, but are not limited to, the number of, and amount of revenue represented by, jurisdictions that ultimately
assert a claim and prevail in assessing such additional tax or negotiate a settlement and changes in relevant
statutes.
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