Expedia 2015 Annual Report Download - page 131

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by the Expedia companies on the basis that the court has already ruled that taxes are not due from the online
travel companies and that binding precedent by the California Court of Appeals precludes the city’s claim for
taxes. On May 14, 2014, the court heard oral argument on the Expedia companies’ contest of the prepayment
requirement for the additional assessments and held that the Expedia companies were required to prepay in order
to litigate the legality of the assessments. On May 26, 2014, the Expedia companies paid $25.5 million under
protest in order to contest the additional assessments. The additional assessments were expensed during the
second quarter of 2014. In addition, Orbitz in total has paid $4.6 million to the city of San Francisco to contest
these assessments issued against it by the city. On August 6, 2014, the California Court of Appeals stayed this
case pending review and decision by the California Supreme Court of the City of San Diego, California
Litigation.
Other Jurisdictions. We are also in various stages of inquiry or audit with domestic and foreign tax
authorities, some of which, including in the United Kingdom regarding the application of value added tax
(“VAT”) to our European Union related transactions as discussed below, impose a pay-to-play requirement to
challenge an adverse inquiry or audit result in court.
The ultimate resolution of these contingencies may be greater or less than the pay-to-play payments made
and our estimates of additional assessments mentioned above.
During 2015, we recorded a $24 million benefit, net of contingency fees, in legal reserves, occupancy tax
and other for the recovery of costs related to occupancy tax litigation matters.
Matters Relating to International VAT. We are in various stages of inquiry or audit in multiple European
Union jurisdictions, including in the United Kingdom, regarding the application of VAT to our European Union
related transactions. While we believe we comply with applicable VAT laws, rules and regulations in the relevant
jurisdictions, the tax authorities may determine that we owe additional taxes. In certain jurisdictions, including
the United Kingdom, we may be required to “pay-to-play” any VAT assessment prior to contesting its validity.
While we believe that we will be successful based on the merits of our positions with regard to the United
Kingdom and other VAT audits in pay-to-play jurisdictions, it is nevertheless reasonably possible that we could
be required to pay any assessed amounts in order to contest or litigate the applicability of any assessments and an
estimate for a reasonably possible amount of any such payments cannot be made.
Matters Relating to Hotel Booking Practices. On July 31, 2012, the United Kingdom Office of Fair Trading
(“OFT”) issued a Statement of Objections alleging that Expedia, Booking.com B.V. and InterContinental Hotels
Group PLC (“IHG”) have infringed European Union and United Kingdom competition law in relation to the
online supply of hotel room accommodations. The Statement of Objections alleged that Expedia and
Booking.com entered into separate agreements with IHG that restricted each online travel company’s ability to
discount the price of IHG hotel rooms. The parties proposed to address the OFT’s concerns by offering
commitments, and on January 31, 2014, the OFT announced that it had formally accepted the commitments
offered by the parties, with no finding of fault or liability. The commitments were intended to be binding on the
parties through January 31, 2016. On April 2, 2014, Skyscanner Limited filed an appeal challenging the OFT’s
January 31, 2014 decision to accept the parties’ commitments. On September 26, 2014, the United Kingdom’s
Competition Appeal Tribunal (“CAT”) granted Skyscanner Limited’s appeal. This judgment required the
Competition & Markets Authority (“CMA”), the United Kingdom’s competition authority, to review the decision
of its predecessor body, the OFT. The CMA did not appeal the CAT’s decision and subsequently announced that
it is considering next steps in the investigation in light of the CAT judgment and market developments, including
developments relating to the investigations of other European competition authorities described below. On
September 16, 2015, the CMA announced that it has closed its investigation without a finding of infringement on
grounds of administrative priority and also that it is not opening a distinct new case into parity provisions in
contracts between hotels and online travel companies, including Expedia.
F-46