INCOME TAXES

9 Months Ended

Sep. 30, 2019



5.	INCOME TAXES

Our provision for income taxes is calculated using an estimated annual effective tax rate, based upon expected annual income, less losses in certain jurisdictions, permanent items, statutory rates and planned tax strategies in the various jurisdictions in which we operate. However, discrete items related to prior year tax items are treated separately.

Our interim effective tax rate was 404.42 percent and 5.19 percent for the three months ended September 30, 2019 and September 30, 2018, respectively. The increase in effective tax rate is predominately attributable to a change in our projected mix of earnings in international jurisdictions with differing tax rates and jurisdictions where valuation allowances are recorded, primarily as a result of the ILG Acquisition.

Our interim effective tax rate was 43.20 percent and 58.16 percent for the nine months ended September 30, 2019 and September 30, 2018, respectively. The decrease in the effective tax rate is predominately attributable to the change in the mix of expected annual income, partially offset by unfavorable one-time adjustments primarily as a result of the ILG Acquisition.

We file income tax returns with U.S. federal and state and non-U.S. jurisdictions and are subject to audits in these jurisdictions. Certain of our returns are being audited in various jurisdictions for years 2012 through 2018. Our unrecognized tax benefit balance could change significantly during the next fiscal year as a result of audits in various jurisdictions. During the nine months ended September 30, 2019, our unrecognized tax benefit balance had increases of $57 million and no material decreases, resulting in a total unrecognized tax benefit balance of $59 million at September 30, 2019. Our total unrecognized tax benefit balance that, if recognized, would impact our effective tax rate, was $19 million at September 30, 2019 and $2 million at December 31, 2018.

Other

During 2019, we finalized our purchase price allocation for the ILG Acquisition and recorded a $87 million reserve for Legacy-ILG tax matters prior to the ILG Acquisition. We expect that we will be indemnified for liabilities of $54 million in connection with Legacy-ILG tax matters pursuant to a Tax Matters Agreement dated May 11, 2016 by and among Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”), Vistana Signature Experiences, Inc., and Interval Leisure Group, Inc., and consequently have recorded a corresponding indemnification asset.