Priceline 2015 Annual Report Download - page 25

expanding scale of our international business activities, any changes in U.S. or international taxation of our activities may increase our worldwide effective tax
rate, increase the complexity and costs associated with tax compliance (especially if changes are implemented or interpreted inconsistently across tax jurisdictions)
and adversely affect our financial position and results of operations.
We are also subject to non-income based taxes, such as value-added, payroll, sales, use, net worth, property and goods and services taxes, in the United
States and various international jurisdictions, as well as the potential for travel transaction taxes in the United States as discussed below and in Note 15 to our
Consolidated Financial Statements. For example, in July 2012 and December 2013, the Dutch Government enacted certain amendments to Dutch tax law including
one-time levies on an employer applied to employee earnings, equal to 16% of an employee's earnings in excess of 150,000 Euros. These irrevocable levies
resulted in additional payroll taxes of approximately $12 million (approximately $9 million after tax) in the fourth quarter of 2013 and approximately $14 million
(approximately $10 million after tax) principally recorded in the third quarter of 2012. From time to time, we are under audit by tax authorities with respect to
these non-income based taxes and may have exposure to additional non-income based tax liabilities.
We may not be able to maintain our "Innovation Box Tax" benefit.
The Netherlands corporate income tax law provides that income generated from qualifying innovative activities is taxed at the rate of 5% ("Innovation
Box Tax") rather than the Dutch statutory rate of 25%. A portion of Booking.com's earnings currently qualifies for Innovation Box Tax treatment. In the year
ended December 31, 2015, the Innovation Box Tax benefit reduced our consolidated income tax expense by approximately $260 million.
In order to be eligible for Innovation Box Tax treatment, Booking.com must, among other things, apply for and obtain a research and development
("R&D") certificate from a Dutch governmental agency every six months confirming that the activities that Booking.com intends to be engaged in over the
subsequent six month period are "innovative." The R&D certificate is current but should Booking.com fail to secure such a certificate in any future period - for
example, because the governmental agency does not view Booking.com's new or anticipated activities as innovative - or should this agency determine that the
activities contemplated to be performed in a prior period were not performed as contemplated or did not comply with the agency's requirements, Booking.com may
lose its certificate and, as a result, the Innovation Box Tax benefit may be reduced or eliminated. Booking.com intends to apply for continued Innovation Box Tax
treatment for future periods. However, Booking.com's application may not be accepted, or, if accepted, the amount of qualifying earnings may be reduced.
In addition, tax laws may change resulting in a reduction or elimination of the tax benefit. As discussed above, the OECD's action plan involves, in part,
evaluation of tax regimes such as the Innovation Box Tax. The European Union Council of Economics and Finance Ministers ("ECOFIN") has endorsed changes
to limit member states' existing innovation and patent box tax regimes providing benefits related to profits derived from intangible assets such as intellectual
property. The OECD's October 2015 final reports recommend that intellectual property qualifying for such tax regimes generally be limited to patents and other
intellectual property assets that are functionally equivalent to patents (such as copyrighted software) if those other assets are both legally protected and subject to
similar approval and registration processes as apply to patents. We expect the European Union to endorse the OECD's approach, which would require the new
approach to be fully implemented in member states no later than July 2021. The Netherlands has already announced its intention to propose related legislative
changes to the Innovation Box Tax regime by September 2016 to be effective January 1, 2017, though we expect such legislative changes will include transition
rules. To the extent Booking.com's intellectual property developed by its innovative activities do not meet the requirements under any new legislation,
Booking.com would eventually lose all or a portion of the benefit of the Innovation Box Tax.
While we expect Booking.com to continue to qualify for Innovation Box Tax treatment with respect to a portion of its earnings for the foreseeable future,
the loss of the Innovation Box Tax benefit (or any material portion thereof), whether due to a change in tax law or a determination by the Dutch government that
Booking.com's activities are not "innovative" or for any other reason, would substantially increase our effective tax rate and adversely impact our results of
operations.
Our financial results will likely be materially impacted by payment of income taxes in the future.
Until our U.S. net operating loss carryforwards are utilized or expire, we do not expect to make tax payments on most of our U.S. income, except for U.S.
federal alternative minimum tax and state income taxes. However, we expect to pay international taxes on our international income other than in countries where
we have operating loss carryforwards. We expect that our international business will continue to generate most of our revenues and profits and will continue to
grow pretax income at a higher rate than our U.S. business and, therefore, we expect that our tax payments will continue to increase. Any increase in our effective
tax rate would have an adverse effect on our results of operations.
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