3. Income Taxes

The provision for income taxes consisted of:


(in $ millions)	Year Ended December 31, 2013			Year Ended December 31, 2012			Year Ended December 31, 2011
Current
US Federal		—			(2	)		—
US State		2			(2	)		—
Non-US		(21	)		(17	)		(23	)

		(19	)		(21	)		(23	)

Deferred
US Federal		3			(3	)		(3	)
Non-US		(2	)		(1	)		—

		1			(4	)		(3	)

Non-current
Liabilities for uncertain tax positions		(2	)		2			(3	)

Provision for income taxes		(20	)		(23	)		(29	)

Income (loss) from continuing operations before income taxes and equity in earnings (losses) of investment in Orbitz Worldwide for US and non-US operations consisted of:


(in $ millions)	Year Ended December 31, 2013			Year Ended December 31, 2012			Year Ended December 31, 2011
US		14			(59	)		46
Non-US		(197	)		(87	)		(133	)

Loss from continuing operations before income taxes and equity in earnings (losses) of investment in Orbitz Worldwide		(183	)		(146	)		(87	)

Deferred income tax assets and liabilities were comprised of:


(in $ millions)	December 31, 2013			December 31, 2012
Deferred tax assets:
Accrued liabilities and deferred income		17			12
Allowance for doubtful accounts		4			3
NOL and tax credit carry forwards		293			202
Pension liability		24			62
Other assets		21			33
Less: Valuation allowance		(345	)		(302	)

Total deferred tax assets		14			10
Netted against deferred tax liabilities		(8	)		(2	)

Deferred tax assets recognized on the balance sheet		6			8

Deferred tax liabilities:
Accumulated depreciation and amortization		(44	)		(41	)
Other		(6	)		(6	)

Total deferred tax liabilities		(50	)		(47	)
Netted against deferred tax assets		8			2

Deferred tax liabilities recognized on the balance sheet		(42	)		(45	)

Net deferred tax liability		(36	)		(37	)

The Company believes that it is more likely than not that the benefit from certain US federal, US State and non-US NOL carry forwards and other deferred tax assets will not be realized. A valuation allowance of $345 million has been recorded against deferred tax assets as of December 31, 2013. If the assumptions change and it is determined that the Company is likely to realize the NOL, the reduction to the valuation allowance will be recognized as an income tax benefit. As of December 31, 2013, the Company had federal NOL carry forwards of approximately $179 million, which expire between 2030 and 2031, and other non-US NOL of $692 million that expire between three years and indefinitely.

Moreover, the ability of the Company to utilize its US NOL carry-forwards to reduce future taxable income is subject to various limitations under the Internal Revenue Code section 382 (“Section 382”). The utilization of such carry-forwards may be limited upon the occurrence of certain ownership changes, including the purchase or sale of stock by 5% shareholders and the offering of stock by the Company during any three-year period resulting in an aggregate change of more than 50% in the beneficial ownership of the Company. In the event of an ownership change, Section 382 imposes an annual limitation on the amount of a Company’s taxable income that can be offset by these carry-forwards.

As a result of the equity transaction that took place on April 15, 2013 (see Note 15), the Company determined that an ownership change has occurred under Section 382 and therefore, the ability to utilize its pre-ownership change NOL is subject to an annual Section 382 limitation. As of December 31, 2013, the Company does not anticipate this limitation will restrict or reduce the utilization of NOL; however, the Company continues to evaluate the potential impact of the Section 382 limitation. Further, the Company continues to track “owner shifts” in determining whether there are future ownership changes under Section 382.

As a result of certain realization requirements of accounting for equity-based compensation, the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets as of December 31, 2013 that arose directly from tax deductions related to equity-based compensation in excess of compensation recognized for financial reporting. Equity will be increased by $8 million if such deferred tax assets are ultimately realized. The Company uses ordering as prescribed under US GAAP for purposes of determining when excess tax benefits have been realized.

As of December 31, 2013, the Company did not record a provision for withholding tax on approximately $1,347 million of the excess of the amount for financial reporting over the tax basis of investments in subsidiaries that can be repatriated to Travelport Limited in a tax free manner. Additionally, as of December 31, 2013, the Company did not record a provision for withholding tax on approximately $48 million of the excess of the amount for financial reporting over the tax basis of investments in subsidiaries that are essentially permanent in duration. As of December 31, 2013, the Company has recorded a deferred tax liability of $1 million and $2 million relating to unremitted earnings of $35 million for its US subsidiaries and $10 million for its non-US subsidiaries, respectively, as those amounts are not considered to be permanent in duration.

The Company’s provision for income taxes differs from its tax benefit at the US Federal statutory rate of 35% as follows:


(in $ millions)	Year Ended December 31, 2013			Year Ended December 31, 2012			Year Ended December 31, 2011
Tax benefit at US federal statutory rate of 35%		64			51			30
Taxes on non-US operations at alternative rates		(12	)		(29	)		(55	)
Liability for uncertain tax positions		(2	)		2			(3	)
Change in valuation allowance		(66	)		(46	)		(1	)
Non-deductible expenses		(7	)		(4	)		(5	)
Adjustment in respect of prior years		3			5			3
State taxes		—			(2	)		—
Other		—			—			2

Provision for income taxes		(20	)		(23	)		(29	)

The Company is subject to income taxes in the US and numerous non-US jurisdictions. The Company’s provision for income taxes is likely to vary materially both from the benefit (provision) at the US federal statutory tax rate and from year to year. While within a period there may be discrete items that impact the Company’s provision for income taxes, the following items consistently have an impact: (i) the Company is subject to income tax in numerous non-US jurisdictions with varying tax rates, (ii) the Company’s earnings outside of the US are taxed at an effective rate that is lower than the US federal rate and at a relatively consistent level of charge, (iii) the location of the Company’s debt in countries with no or low rates of federal tax results in limited tax benefit for interest and (iv) a valuation allowance is established against the deferred tax assets relating to the Company’s historical losses to the extent they are unlikely to be realized. Significant judgment is required in determining the Company’s worldwide provision for income taxes and recording the related assets and liabilities. In the ordinary course of business, there are many transactions and tax positions where the ultimate tax determination is uncertain.

Although the Company believes there is appropriate support for the positions taken on its tax returns, the Company has recorded liabilities (or reduction of tax assets) representing estimated economic loss upon ultimate settlement for certain positions. The Company believes tax provisions are adequate for all open years, based on assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter. Although the Company believes the recorded assets and liabilities are reasonable, tax regulations are subject to interpretation and tax litigation is inherently uncertain; therefore, the Company’s assessments can involve both a series of complex judgments about future events and reliance on significant estimates and assumptions. While the Company believes the estimates and assumptions supporting the assessments are reasonable, the final determination of tax audits and any other related litigation could be materially different from that which is reflected in historical income tax provisions and recorded assets and liabilities.

With limited exceptions, the Company is no longer subject to US federal, state and local, or non-US income tax examinations by tax authorities for tax years before 1995. The Company has undertaken an analysis of material tax positions in its tax accruals for all open years and has identified all outstanding tax positions. The Company only expects a significant increase to unrecognized tax benefits within the next twelve months for the uncertain tax positions relating to certain interest exposures. The Company does not expect a significant reduction in the total amount of unrecognized tax benefits within the next twelve months as a result of payments. The total amount of unrecognized tax benefits (including interest and penalties thereon) that, if recognized, would affect the effective tax rate is $24 million, $23 million and $25 million as of December 31, 2013, 2012 and 2011, respectively.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:


(in $ millions)	December 31, 2013			December 31, 2012			December 31, 2011
Unrecognized tax benefit — opening balance		23			25			57
Gross increases — tax positions in prior periods		8			6			—
Gross decreases — tax positions in prior periods		(5	)		(6	)		(3	)
Gross increases — tax positions in current period		1			—			6
Decrease related to lapsing of statute of limitations		(2	)		(2	)		—
Decrease due to disposals		—			—			(32	)
Settlements		(1	)		—			(3	)

Unrecognized tax benefit — ending balance		24			23			25

The Company recognizes interest and penalties accrued related to unrecognized tax benefits as part of the provision for income taxes. In 2013, 2012 and 2011, the Company accrued (released) approximately $2, $(1) million and $0, respectively, for interest and penalties. The total interest and penalties included in the ending balance of unrecognized tax benefits above was $6 million and $4 million as of December 31, 2013 and 2012, respectively. Included in the ending balance of unrecognized tax benefits was $1 million and $2 million as of December 31, 2013 and 2012, respectively, which is expected to be realized in the next twelve months due to lapsing of statute of limitations.