TripAdvisor 2012 Annual Report Download - page 105

We have not provided for deferred U.S. income taxes on undistributed earnings of certain foreign subsidiaries that
we intend to reinvest permanently outside the United States; the total amount of such earnings as of December 31,
2012 and 2011 was $371.6 million and $258.0 million, respectively. Should we distribute or be treated under certain
U.S. tax rules as having distributed earnings of foreign subsidiaries in the form of dividends or otherwise, we may be
subject to U.S. income taxes. Due to complexities in tax laws and various assumptions that would have to be made, it is
not practicable at this time to estimate the amount of unrecognized deferred U.S. taxes on these earnings.
A reconciliation of the provision for income taxes to the amounts computed by applying the statutory
federal income tax rate to income before income taxes is as follows:
Year Ended December 31,
2012 2011 2010
(In thousands)
Income tax expense at the federal statutory rate of 35% .................... $98,691 $ 95,163 $78,545
Foreign rate differential ............................................. (25,069) (15,319) (6,947)
State income taxes, net of effect of federal tax benefit ..................... 5,581 4,240 7,716
Unrecognized tax benefits and related interest ........................... 4,853 2,570 1,920
Non-deductible transaction costs ...................................... — 2,426 —
Change in valuation allowance ....................................... 2,535 3,451 3,639
Other, net ........................................................ 796 1,572 588
Provision for income taxes .......................................... $87,387 $ 94,103 $85,461
During the fourth quarter of 2012, we restructured our non-US operations to align our global structure for
more efficient treasury management and global cash deployment. As a result, and due to the continued expansion
of our non-US operations, we expect our effective tax rate to continue to decrease.
During 2011, the Singapore Economic Development Board accepted our application to receive a tax incentive
under the International Headquarters Award. This incentive provides for a reduced tax rate on qualifying income of
5% as compared to Singapore’s statutory tax rate of 17% and is conditional upon our meeting certain employment
and investment thresholds. This agreement is set to expire on June 30, 2016, with the ability to extend for another
five years. This benefit resulted in a decrease to the 2012 tax provision of $4.3 million.
By virtue of previously filed consolidated income tax returns filed with Expedia, we are routinely under
audit by federal, state and foreign tax authorities. We are currently under an IRS audit for the 2009 and 2010 tax
years, and have various ongoing state income tax audits. As of December 31, 2012, no material assessments have
resulted from these audits. These audits include questioning the timing and the amount of income and deductions
and the allocation of income among various tax jurisdictions. Annual tax provisions include amounts considered
sufficient to pay assessments that may result from the examination of prior year returns. We are no longer subject
to tax examinations by tax authorities for years prior to 2005.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (excluding interest
and penalties) is as follows:
2012 2011 2010
(In thousands)
Balance, beginning of year ............................................ $12,900 $ 6,342 $ 2,672
Increases to tax positions related to the current year ........................ 11,854 5,631 3,913
Increases to tax positions related to the prior year .......................... 540 927 2,123
Reductions due to lapsed statute of limitations ............................ — — (2,366)
Decreases to tax positions related to the prior year ......................... — — —
Settlements during current year ........................................ (1,245) — —
Balance, end of year ................................................. $24,049 $12,900 $ 6,342
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