Starwood 2012 Annual Report Download - page 185

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
A reconciliation of our tax provision at the U.S. statutory rate to the provision for income tax as reported is
as follows (in millions):
Year Ended December 31,
2012 2011 2010
Tax provision at U.S. statutory rate ................................ $216 $ 149 $ 117
U.S. state and local income taxes .................................. 6 (19) (2)
Tax on repatriation of foreign earnings ............................. 3 25 (19)
Effect of foreign operations and other .............................. (74) (94) (108)
Foreign withholding tax ......................................... 34 22 16
Tax/(benefit) on capital gains ..................................... (1) 334 99
Change in asset basis ........................................... (13) (130) —
Change in uncertain tax positions .................................. 15 22 23
Tax settlements ................................................ (1) (25) (42)
Tax/(benefit) on asset dispositions ................................. (41) (51) 4
Change in valuation allowances ................................... 21 (304) (99)
Other ........................................................ (17) (4) 38
Provision for income tax (benefit) ................................. $148 $ (75) $ 27
The effect of foreign operations and other reconciling item includes the difference between the U.S.
statutory tax rate and the local country statutory tax rate, impacts of tax holidays and tax exempt income.
In 2011, we 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 our 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 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 we 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, we recognized a $134 million tax benefit in discontinued operations primarily related
to the portion of the tax no longer due.
As of December 31, 2012, we had approximately $191 million of total unrecognized tax benefits, of which
$52 million would affect our 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,
2012 2011 2010
Beginning of year .............................................. $153 $ 510 $ 999
Additions based on tax positions related to the current year ........... 19 24 29
Additions for tax positions of prior years .......................... 27 36 18
Settlements with tax authorities ................................. (4) (407) (499)
Reductions for tax positions in prior years ......................... (3) (6) (5)
Reductions due to the lapse of applicable statutes of limitations ........ (1) (4) (32)
End of year ................................................... $191 $ 153 $ 510
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