Priceline 2011 Annual Report Download - page 94

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93
Income tax expense at federal statutory rate
Adjustment due to:
State taxes
Foreign rate differential
Innovation Box Tax benefit
Increase (decrease) in valuation allowance
Other
Income tax expense (benefit)
2011
$ 478,728
5,168
(125,824)
(48,101)
(14)
(1,294)
$ 308,663
2010
$ 261,199
6,762
(58,927)
(11,645)
69
20,683
$ 218,141
2009
$ 154,806
5,226
(31,892)
—
(183,272)
7,964
$(47,168)
The Company accounts for uncertain tax positions based on a two step approach of recognition and measurement.
The first step involves assessing whether the tax position is more likely than not to be sustained upon examination based upon
its technical merits. The second step involves measurement of the amount to recognize. Tax positions that meet the more
likely than not threshold are measured at the largest amount of tax benefit that is greater than 50% likely of being realized upon
ultimate finalization with the taxing authority.
The following is a reconciliation of the total amount of unrecognized tax benefits (in thousands):
Unrecognized tax benefit — January 1
Gross increases — tax positions in current period
Gross increases — tax positions in prior period
Gross decreases — tax positions in prior period
Unrecognized tax benefit — December 31
2011
$ 13,386
1,455
876
(12,525)
$ 3,192
2010
$ 741
12,645
—
—
$ 13,386
2009
$ 741
—
—
—
$ 741
The unrecognized tax benefits are included in "Other long-term liabilities" on the Consolidated Balance Sheets for the
years ended December 31, 2011 and 2010. Following the conclusion of an audit, the Company reversed approximately $12.5
million in the three months ended June 30, 2011 for unrecognized tax benefits attributable to tax positions taken in 2010. The
Company does not expect further significant changes in the amount of unrecognized tax benefits during the next twelve
months.
The Company’s U.S. federal and Connecticut, Netherlands, and U.K. income tax returns, constituting the returns of
the major taxing jurisdictions, are subject to examination by the taxing authorities as prescribed by applicable statute. The
statute of limitations remains open for the Company's U.S. federal and Connecticut returns from 2008 and forward; for the
Netherlands from 2005 and forward; and for the U.K. from 2007 and forward. No income tax waivers have been executed that
would extend the period subject to examination beyond the period prescribed by statute.
As an international corporation providing hotel reservation services available around the world, the Company is
subject to income taxes as well as non-income based taxes, in both the United States and various foreign jurisdictions.
Significant judgment is required in determining the Company's worldwide provision for income taxes and other tax liabilities.
Although the Company believes that its tax estimates are reasonable, there is no assurance that the final determination of tax
audits or tax disputes will not be different from what is reflected in the Company's historical income tax provisions and
accruals. To date, we have been audited in several taxing jurisdictions with no significant adjustments as a result. The Internal
Revenue Service initiated an audit of our 2009 and 2010 federal income tax returns in the third quarter of 2011.
16. COMMITMENTS AND CONTINGENCIES
Litigation Related to Hotel Occupancy and Other Taxes
The Company and certain third-party defendant online travel companies are currently involved in approximately fifty
lawsuits, including certified and putative class actions, brought by or against U.S. states, cities and counties over issues
involving the payment of hotel occupancy and other taxes (i.e., state and local sales tax) and the Company’s "merchant" hotel
business. The Company’s subsidiaries Lowestfare.com LLC and Travelweb LLC are named in some but not all of these cases.
Generally, each complaint alleges, among other things, that the defendants violated each jurisdiction’s respective hotel
occupancy tax ordinance with respect to the charges and remittance of amounts to cover taxes under each law. Each complaint