Starwood 2011 Annual Report Download - page 146

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
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):
Year Ended December 31,
2011 2010 2009
Tax provision at U.S. statutory rate ................................ $149 $117 $(104)
U.S. state and local income taxes .................................. (19) (2) (3)
Tax on repatriation of foreign earnings ............................. 25 (19) (45)
Foreign tax rate differential ...................................... (64) (70) (25)
Tax on capital gains ............................................ 334 99 —
Change in asset basis ........................................... (130) — (120)
Nondeductible goodwill ......................................... 9 3 39
Change in uncertain tax positions .................................. 8 23 9
Tax settlements ................................................ (25) (42) 1
Tax on asset dispositions ........................................ (60) 1 (32)
Change in valuation allowances ................................... (304) (99) —
Other ........................................................ 2 16 (13)
Provision for income tax (benefit) ................................. $ (75) $ 27 $(293)
The foreign tax rate differential benefit primarily relates to the Company’s operations in Luxembourg and
Singapore.
In 2011, the Company completed transactions that involved certain domestic and foreign subsidiaries. These
transactions generated capital gains, increased the tax basis in subsidiaries including U.S. partnerships and
resulted in the inclusion of foreign earnings for U.S. tax purposes. The capital gains were largely reduced by the
utilization of capital losses. Due to the uncertainty regarding the Company’s ability to generate capital gain
income, the deferred tax asset associated with these capital losses was offset by a full valuation allowance prior
to these transactions. During 2009, the Company entered into an Italian tax incentive program through which the
tax basis of its Italian owned hotels was adjusted resulting in a $120 million tax benefit.
During 2011, the IRS closed its audit with respect to tax years 2004 through 2006 resulting in a $25 million
tax benefit primarily related to the reversal of tax and interest reserves. During 2010, the IRS closed its audit with
respect to tax years 1998 through 2003 and the Company recognized a $42 million tax benefit in continuing
operations primarily associated with the refund of interest on taxes previously paid. Also in 2010, as a result of
the 1998 through 2003 audit closure, the Company recognized a $134 million tax benefit in discontinued
operations primarily related to the portion of the tax no longer due.
As of December 31, 2011, the Company had approximately $153 million of total unrecognized tax benefits,
of which $42 million would affect its effective tax rate if recognized. A reconciliation of the beginning and
ending balance of unrecognized tax benefits is as follows (in millions):
Year Ended December 31,
2011 2010 2009
Beginning of Year ............................................ $510 $999 $1,003
Additions based on tax positions related to the current year .......... 24 29 4
Additions for tax positions of prior years ........................ 36 18 2
Settlements with tax authorities ................................ (407) (499) (7)
Reductions for tax positions in prior years ....................... (6) (5) (1)
Reductions due to the lapse of applicable statutes of limitations ...... (4) (32) (2)
End of Year ................................................. $153 $510 $ 999
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