INCOME TAXES

3 Months Ended

Mar. 31, 2020



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 35.4 percent and 40.4 percent for the three months ended March 31, 2020 and March 31, 2019, respectively. The decrease in effective tax rate is predominately attributable to a pre-tax loss and a release in uncertain tax benefits for the three months ended March 31, 2020, and a change in our projected mix of earnings in international jurisdictions with differing tax rates and jurisdictions where valuation allowances are recorded.

We have considered the income tax accounting and disclosure implications of the relief provided by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted on March 27, 2020. As of March 31, 2020, we evaluated the income tax provisions of the CARES Act and have determined there to be no effect on either the March 31, 2020 tax rate or the computation of the estimated effective tax rate for the year ended December 31, 2020. We will continue to evaluate the income tax provisions of the CARES Act and monitor the developments in the jurisdictions where we have significant operations for tax law changes that could have income tax accounting and disclosure implications.

Unrecognized Tax Benefits

The following table summarizes the activity related to our unrecognized tax benefits (excluding interest and penalties) during the three months ended March 31, 2020.



($ in millions)	Unrecognized Tax Benefits
Balance at December 31, 2019	$	21
Decreases related to settlements with taxing authorities	(10		)
Decreases related to tax positions taken during a prior period	(1		)
Balance at March 31, 2020	$	10

The total unrecognized tax benefits related to uncertain income tax positions, which would affect the effective tax rate if recognized, was $10 million at March 31, 2020 and $21 million at December 31, 2019. The total amount of gross interest and penalties accrued was $17 million at March 31, 2020 and $41 million at December 31, 2019. The decrease in our unrecognized tax benefits, including interest and penalties, is offset by a $32 million expense to (Losses) gains and other (expense) income, net for amounts previously recorded as indemnified pursuant to a Tax Matters Agreement dated May 11, 2016, (the “Tax

Matters Agreement”) by and among Starwood Hotels & Resorts Worldwide, Inc., Vistana Signature Experiences, Inc., and Interval Leisure Group, Inc.

We anticipate $10 million of unrecognized tax benefits, including interest and penalties, to be indemnified pursuant to the Tax Matters Agreement and consequently have recorded a corresponding indemnification asset. The unrecognized tax benefits, including accrued interest and penalties, are included in other liabilities on our Balance Sheet.

Our income tax returns are subject to examination by relevant tax authorities. Certain of our returns are being audited in various jurisdictions for tax years 2012 through 2017. We reasonably expect the amount of the unrecognized tax benefits will decrease within the next twelve months as a result of certain agreed upon audit settlements with tax authorities, which would not have an impact on net income.