Starwood 2010 Annual Report Download - page 144

A reconciliation of the tax provision of the Company at the U.S. statutory rate to the provision for income tax as
reported is as follows (in millions):
2010 2009 2008
Year Ended December 31,
Tax provision at U.S. statutory rate ............................... $117 $(104) $112
U.S. state and local income taxes ................................ (2) (3) 8
Tax on repatriation of foreign earnings ............................ 70 (45) (14)
Foreign tax rate differential .................................... (70) (25) (20)
Italian incentive program ...................................... — (120) —
Nondeductible goodwill ....................................... 3 39 —
Change in uncertain tax positions ................................ 23 9 —
Tax settlements ............................................. (42) 1 —
Tax benefit on the deferred gain from asset sales .................... (7) (3) (10)
Basis difference on asset sales .................................. 8 (29) 16
Change in valuation allowance .................................. (99) — (31)
Other ..................................................... 26 (13) 11
Provision for income tax (benefit)................................ $ 27 $(293) $ 72
During 2009, the Company completed an evaluation of its ability to claim U.S. foreign tax credits generated in
prior years on its federal tax return. As a result of this analysis, the Company determined that it could realize the
credits for the 2001 through 2004 tax years. The Company had not previously accrued this benefit since the
realization of the benefit was determined to be unlikely. Therefore, during 2009, a $37 million tax benefit, net of
incremental taxes and interest, was recorded for these foreign tax credits. Additionally, during 2010, the Company
adjusted its deferred income tax balances by approximately $30 million for items related to prior periods. As
discussed below, as a result of final negotiations during 2010 related to the tax settlement on the 1998 disposition of
World Directories, the Company agreed to forgo foreign tax credits generated in tax years 2000 through 2002.
Therefore, during 2010, a portion of the 2009 tax benefit discussed in this paragraph was reversed.
During 2009, the Company entered into an Italian tax incentive program through which the tax basis of its
Italian owned hotels were stepped up in exchange for paying $9 million of current tax over a three year period. As a
result, the Company was able to recognize a tax benefit of $129 million to establish the deferred tax asset related to
the basis step up. This benefit was offset by a $9 million tax charge to accrue the current tax payable under the
program, resulting in a net benefit of $120 million.
During 2010, the Company recognized goodwill impairments associated with the sale of a wholly-owned
hotel. During 2009, the Company recognized goodwill impairments associated with the sale of a wholly-owned
hotel and the overall value of its timeshare operations. For tax purposes, the impairments are not deductible. As a
result, the Company did not recognize a tax benefit on the impairments and the provision for income tax was
unfavorably impacted by a $3 million and $39 million charge in 2010 and 2009, respectively.
During 2010, the Company finalized the details of its settlement with the IRS with respect to the 1998
disposition of World Directories. Final negotiations in 2010 resulted in the Company agreeing to forgo foreign tax
credit claims for tax years 2000 through 2002. As a result of the settlement, the Company obtained a refund of
previously paid taxes, plus interest, of approximately $245 million. The Company recognized a $42 million tax
benefit in continuing operations, which included a $92 million tax benefit primarily for interest on taxes previously
paid offset by a $50 million tax charge to derecognize previously benefited foreign tax credits. In addition, the
Company recognized a $134 million tax benefit in discontinued operations primarily related to the portion of the tax
no longer due.
F-28
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)