Groupon 2013 Annual Report Download - page 28

20
We may have exposure to greater than anticipated tax liabilities.
Our income tax obligations are based on our corporate operating structure, including the manner in which we develop,
value and use our intellectual property and the scope of our international operations. The tax laws applicable to our international
business activities, including the laws of the United States and other jurisdictions, are subject to interpretation. The taxing authorities
of the jurisdictions in which we operate may challenge our methodologies for valuing developed technology or intercompany
arrangements, which could increase our worldwide effective tax rate and harm our financial position and results of operations. In
addition, our future income taxes could be adversely affected by greater earnings in jurisdictions that have higher statutory tax
rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations or accounting
principles. We are subject to regular review and audit by both U.S. federal and state and foreign tax authorities. Any adverse
outcome of such a review or audit could have a negative effect on our financial position and results of operations. In addition, the
determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment by management,
and there are many transactions where the ultimate tax determination is uncertain. Although we believe that our estimates are
reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect
our financial results in the period or periods for which such determination is made.
The enactment of legislation implementing changes in the U.S. taxation of international business activities or the adoption of
other tax reform policies could materially affect our financial position and results of operations.
The current administration has made public statements indicating that it has made international tax reform a priority, and
key members of the U.S. Congress have conducted hearings and proposed a wide variety of potential changes. Certain changes
to U.S. tax laws, including limitations on the ability to defer U.S. taxation on earnings outside of the United States until those
earnings are repatriated to the United States, could affect the tax treatment of our foreign earnings, as well as cash and cash
equivalent balances we currently maintain outside of the United States. Due to the large and expanding scale of our international
business activities, any changes in the U.S. taxation of such activities may increase our worldwide effective tax rate and harm our
financial position and results of operations.
The implementation of the CARD Act and similar state and foreign laws may harm our business and results of operations.
It is not clear at this time, but Groupons may be considered gift cards, gift certificates, stored value cards or prepaid cards
and therefore governed by, among other laws, the CARD Act, and state laws governing gift cards, stored value cards and coupons.
Other foreign jurisdictions have similar laws in place, in particular European jurisdictions where the European E-Money Directive
regulates the business of electronic money institutions. Many of these laws contain provisions governing the use of gift cards, gift
certificates, stored value cards or prepaid cards, including specific disclosure requirements and prohibitions or limitations on the
use of expiration dates and the imposition of certain fees. For example, if Groupons are subject to the CARD Act and are not
included in the exemption for promotional programs, it is possible that the purchase value, which is the amount equal to the price
paid for the Groupon, or the promotional value, which is the add-on value of the Groupon in excess of the price paid, or both, may
not expire before the later of (i) five years after the date on which the Groupon was issued or the date on which the customer last
loaded funds on the Groupon if the Groupon has a reloadable feature; (ii) the Groupon's stated expiration date (if any); or (iii) a
later date provided by applicable state law. We and several merchants are currently defendants in purported class action litigation
that has been filed in federal and state court claiming that Groupons are subject to the CARD Act and various state laws governing
gift cards and that the defendants have violated these laws by issuing Groupons with expiration dates and other restrictions. In the
event that it is determined that Groupons are subject to the CARD Act or any similar state or foreign law or regulation, and are
not within various exemptions that may be available to Groupon under the CARD Act or under some of the various state or foreign
jurisdictions, our liabilities with respect to unredeemed Groupons may be materially higher than the amounts shown in our financial
statements and we may be subject to additional fines and penalties. In addition, if federal or state laws require that the face value
of Groupons have a minimum expiration period beyond the period desired by a merchant for its promotional program, or no
expiration period, this may affect the willingness of merchants to issue Groupons in jurisdictions where these laws apply.
If we are required to materially increase the estimated liability recorded in our financial statements with respect to unredeemed
Groupons, our results from operations could be materially and adversely affected.
In certain states and foreign jurisdictions, Groupons may be considered a gift card. Some of these states and foreign
jurisdictions include gift cards under their unclaimed and abandoned property laws which require companies to remit to the
government the value of the unredeemed balance on the gift cards after a specified period of time (generally between one and five
years) and impose certain reporting and record-keeping obligations. We do not remit any amounts relating to unredeemed Groupons
based on our assessment of applicable laws. The analysis of the potential application of the unclaimed and abandoned property
laws to Groupons is complex, involving an analysis of constitutional and statutory provisions and factual issues, including our
relationship with customers and merchants and our role as it relates to the issuance and delivery of a Groupon. In the event that