INCOME TAXES

International pre-tax income was $2.9 billion, $2.2 billion and $1.7 billion for the years ended December 31, 2014, 2013 and 2012, respectively. Domestic pre-tax income was $98.4 million, $48.5 million, and $95.0 million for the years ended December 31, 2014, 2013, and 2012, respectively.

The income tax expense (benefit) for the year ended December 31, 2014 is as follows (in thousands):



	Current		Deferred			Total
International	$	496,719	$	(10,613	)	$	486,106
U.S. Federal	10,316		47,847			58,163
U.S. State	28,953		(5,527		)	23,426
Total	$	535,988	$	31,707		$	567,695

The income tax expense (benefit) for the year ended December 31, 2013 is as follows (in thousands):



	Current		Deferred			Total
International	$	396,162	$	(16,314	)	$	379,848
U.S. Federal	5,250		11,454			16,704
U.S. State	13,431		(6,244		)	7,187
Total	$	414,843	$	(11,104	)	$	403,739

The income tax expense (benefit) for the year ended December 31, 2012 is as follows (in thousands):



	Current		Deferred			Total
International	$	302,352	$	(13,792	)	$	288,560
U.S. Federal	3,681		37,956			41,637
U.S. State	12,203		(4,568		)	7,635
Total	$	318,236	$	19,596		$	337,832

The Company has significant deferred tax assets, resulting principally from U.S. net operating loss carryforwards ("NOLs"). The amount of NOLs available for the Company's use is limited by Section 382 of the Internal Revenue Code ("IRC Section 382"). IRC Section 382 imposes limitations on the availability of a company's NOLs after a more than 50% ownership change occurs. It was determined that ownership changes, as defined in IRC Section 382 have occurred. The amount of the Company's NOLs incurred prior to each ownership change is limited based on the value of the Company on the respective dates of ownership change.

At December 31, 2014, after considering the impact of IRC Section 382, the Company had approximately $1.2 billion of available NOL's for U.S. federal income tax purposes, comprised of approximately $22 million of NOLs generated from operating losses and approximately $1.2 billion of NOLs generated from equity-related transactions, including equity-based compensation and stock warrants. The NOLs mainly expire from December 31, 2019 to December 31, 2021. The utilization of these NOLs is dependent upon the Company's ability to generate sufficient future taxable income in the United States. The Company periodically evaluates the likelihood of the realization of deferred tax assets, and reduces the carrying amount of these deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized. The Company considers many factors when assessing the likelihood of future realization of the deferred tax assets, including its recent cumulative earnings experience by taxing jurisdiction, expectations of future income, the carryforward periods available for tax reporting purposes, and other relevant factors.

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities at December 31, 2014 and 2013 are as follows (in thousands):



	2014			2013
Deferred tax assets/(liabilities):
Net operating loss carryforward — U.S.	$	176,786		$	263,994
Net operating loss carryforward — International	22,353			21,660
Fixed assets	—			818
Accrued expenses	41,117			22,708
Stock-based compensation and other stock based payments	54,935			40,346
Other	24,456			33,530
Subtotal	319,647			383,056

Discount on convertible notes	(141,193		)	(97,550		)
Intangible assets and other	(856,807		)	(356,669		)
Euro denominated debt	(35,441		)	—
Fixed assets	(3,409		)	—
Less valuation allowance on deferred tax assets	(161,997		)	(173,558		)
Net deferred tax assets (liabilities)⁽¹⁾	$	(879,200	)	$	(244,721	)

(1) Includes non-current deferred tax assets of $8.5 million and $7.1 million as of December 31, 2014 and 2013, respectively, reported in "Other assets" on the Consolidated Balance Sheets and current deferred tax liabilities of $1.2 million and $38 thousand as of December 31, 2014 and 2013, respectively, reported in "Accrued expenses and other current liabilities" on the Consolidated Balance Sheets.

The valuation allowance on deferred tax assets of $162.0 million at December 31, 2014 includes $140.4 million related to U.S. federal net operating loss carryforwards derived from equity transactions and $21.6 million related to international operations. Additionally, since January 1, 2006, the Company has generated additional federal tax benefits of $250.0 million related to equity transactions that are not included in the deferred tax asset table above. Pursuant to accounting guidance, these tax benefits related to equity deductions will be recognized by crediting paid in capital, if and when they are realized by reducing the Company's current income tax liability.

It is the practice and intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in those operations. Thus at December 31, 2014, no provision had been made for U.S. taxes on approximately $7.3 billion of international earnings because such earnings are intended to be indefinitely reinvested outside of the United States. It is not practicable to determine the U.S. federal income tax liability that would be payable if such earnings were not indefinitely reinvested.

At December 31, 2014, the Company has approximately $673.4 million of U.S. state net operating loss carryforwards that expire mainly between December 31, 2020 and December 31, 2033, $131.2 million of non-U.S. net operating loss carryforwards, of which $49.3 million expire between December 31, 2019 and December 31, 2021 and $3.7 million which expire between December 31, 2028 and December 31, 2030, and $1.7 million of foreign capital allowance carryforwards that do not expire. At December 31, 2014, the Company also had approximately $29.6 million of U.S. research credit carryforwards that mainly expire between December 31, 2033 and December 31, 2034 and are also subject to annual limitation.

A significant portion of the Company's taxable earnings are derived from the Netherlands. Under Dutch corporate income tax law, income generated from qualifying innovative activities is taxed at a rate of 5% ("Innovation Box Tax") rather than the Dutch statutory rate of 25%. Booking.com obtained a ruling from the Dutch tax authorities in February 2011 confirming that a portion of its earnings ("qualifying earnings") is eligible for Innovation Box Tax treatment. The ruling from the Dutch tax authorities is valid until December 31, 2017.

The effective income tax rate of the Company is different from the amount computed using the expected U.S. statutory federal rate of 35% as a result of the following items (in thousands):



	2014			2013			2012
Income tax expense at federal statutory rate	$	1,046,307		$	803,788		$	616,654
Adjustment due to:
Foreign rate differential	(289,692		)	(226,894		)	(175,932		)
Innovation Box Tax benefit	(233,545		)	(177,195		)	(118,916		)
Other	44,625			4,040			16,026
Income tax expense	$	567,695		$	403,739		$	337,832

The Company accounts for uncertain tax positions based on a two step approach of recognition and measurement. The first step involves assessing whether the tax position is more likely than not to be sustained upon examination based upon its technical merits. The second step involves measurement of the amount to recognize. Tax positions that meet the more likely than not threshold are measured at the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate finalization with the taxing authority.

The following is a reconciliation of the total amount of unrecognized tax benefits (in thousands):



	2014			2013			2012
Unrecognized tax benefit — January 1	$	22,104		$	7,343		$	3,192
Gross increases — tax positions in current period	9,305			8,597			4,423
Gross increases — tax positions in prior periods	6,569			3,507			343
Increase acquired in business combination	17,767			7,089			—
Gross decreases — tax positions in prior periods	(2,164		)	(495		)	(615		)
Reduction due to lapse in statute of limitations	(346		)	(3,937		)	—
Reduction due to settlements during the current period	(879		)	—			—
Unrecognized tax benefit — December 31	$	52,356		$	22,104		$	7,343

The unrecognized tax benefits are included in "Other long-term liabilities" on the Consolidated Balance Sheets for the years ended December 31, 2014 and 2013. The Company does not expect further significant changes in the amount of unrecognized tax benefits during the next twelve months.

The Company's Netherlands, U.S. federal and Connecticut, Singapore, and U.K. income tax returns, constituting the returns of the major taxing jurisdictions, are subject to examination by the taxing authorities as prescribed by applicable statute. The statute of limitations remains open for: the Company's Netherlands returns from 2008 and forward; the Company's Singapore returns from 2011 and forward; the Company's U.S. Federal and Connecticut returns from 2011 and forward; and the Company's U.K. returns for the tax years 2008, 2013, and 2014. No income tax waivers have been executed that would extend the period subject to examination beyond the period prescribed by statute in the major taxing jurisdictions in which the company is a taxpayer.