Expedia 2014 Annual Report Download - page 25

multiple European Union jurisdictions regarding the application of value added tax to our European Union
transactions. While we believe we comply with applicable tax laws, rules and regulations in the jurisdictions we
operate, tax authorities may determine that we owe additional taxes. We have in the past and may in the future be
required in certain domestic and foreign jurisdictions to pay any such tax assessments prior to contesting their
validity, which payments may be substantial. This requirement is commonly referred to as “pay-to-play.”
Payment of these amounts is not an admission that the taxpayer believes it is subject to such taxes. For example,
as a pre-condition to challenging the assessments, on January 9, 2015, we paid $2.3 million under protest to the
city of Portland, Oregon and Multnomah County, Oregon; during 2009, we paid $48 million under protest to the
city of San Francisco and an additional $25.5 million under protest on May 26, 2014 in connection with
additional assessments; and during 2013, we paid $171 million to the state of Hawaii. The state of Hawaii has
also issued additional assessments for general excise tax, penalties and interest against Expedia, Hotels.com and
Hotwire, including: an assessment of $20.5 million for 2012 tax year non-commissioned hotel reservations, an
assessment of $29.2 million (including a duplicative assessments) for tax years 2000 through 2012 non-
commissioned travel agency services relating to rental cars, and an assessment of $28.5 million for non-
commissioned travel agency services relating to hotel reservations and car rental for the tax year 2013 and for
which we have requested additional support from the state of Hawaii but have not received any response to date.
Furthermore, due to the global nature of our business, we are subject to income and other non-income taxes
in the United States and numerous foreign jurisdictions. Significant judgment and estimation is required in
determining our worldwide tax liabilities. In the ordinary course of our business, there are transactions and
calculations, including intercompany transactions and cross-jurisdictional transfer pricing, for which the ultimate
tax determination is uncertain or otherwise subject to interpretation. Tax authorities may disagree with our
intercompany charges, cross-jurisdictional transfer pricing or other matters and assess additional taxes. Although
we believe our tax estimates are reasonable, the final determination of tax audits could be materially different
from our historical income tax provisions and accruals in which case we may be subject to additional tax
liabilities, possibly including interest and penalties, which could have a material adverse effect on our cash flows,
financial condition and results of operations.
Amendment to existing tax laws, rules or regulations or enactment of new unfavorable tax laws, rules
or regulations could have an adverse effect on our business and financial performance.
Many of the underlying laws, rules or regulations imposing taxes and other obligations were established
before the growth of the internet and e-commerce. If the tax or other laws, rules or regulations were amended, or
if new unfavorable laws, rules or regulations were enacted, particularly with respect to occupancy, value-added
taxes, or unclaimed property, the results could increase our tax payments or other obligations, prospectively or
retrospectively, subject us to interest and penalties, decrease the demand for our products and services if we pass
on such costs to the consumer, result in increased costs to update or expand our technical or administrative
infrastructure or effectively limit the scope of our business activities if we decided not to conduct business in
particular jurisdictions. As a result, these changes could have an adverse effect on our business or financial
performance.
In addition, in the past U.S. and foreign governments have introduced proposals for tax legislation that could
have a significant adverse effect on our tax rate, the carrying value of deferred tax assets, or our deferred tax
liabilities. For example, the Organization for Economic Co-Operation and Development (“OECD”) issued an
action plan in July 2013 calling for a coordinated multi-jurisdictional approach to “base erosion and profit
shifting” (“BEPS”) by multinational companies. Any changes to national or international tax laws could impact
the tax treatment of our foreign earnings and adversely affect our profitability. Our effective tax rate in the future
could also be adversely affected by changes to our operating structure, changes in the mix of earnings in
countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or the
discontinuance of beneficial tax arrangements in certain jurisdictions.
We continue to work with relevant authorities and legislators to clarify our obligations under existing, new
and emerging tax laws and regulations.
21