INCOME TAXES

6 Months Ended

Jun. 30, 2020

Income Tax Disclosure [Abstract]

Income taxes

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 23.3 percent and 33.0 percent for the three months ended June 30, 2020 and June 30, 2019, respectively. The change in the effective tax rate is predominately attributable to a pre-tax loss, and a change in our projected mix of earnings in international jurisdictions with differing tax rates and jurisdictions where valuation allowances are recorded.

Our interim effective tax rate was 31.4 percent and 35.6 percent for the six months ended June 30, 2020 and June 30, 2019, respectively. The change in the effective tax rate is predominately attributable to a pre-tax loss and a release in uncertain tax benefits for the six months ended June 30, 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 June 30, 2020, we evaluated the income tax provisions of the CARES Act and have determined there to be no effect on either the June 30, 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 six months ended June 30, 2020.

($ in millions)	Unrecognized Tax Benefits
Balance at December 31, 2019	$	21
Increases related to tax positions taken during the current period	1
Decreases related to settlements with taxing authorities	(14)
Decreases related to tax positions taken during a prior period	(1)
Balance at June 30, 2020	$	7

The total unrecognized tax benefits related to uncertain income tax positions, which would affect the effective tax rate if recognized, was $7 million at June 30, 2020 and $21 million at December 31, 2019. The total amount of gross interest and penalties accrued was $16 million at June 30, 2020 and $41 million at December 31, 2019. The decrease in our unrecognized tax benefits, including interest and penalties, is offset by a $30 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 $4 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 2013 through 2018. The amount of the unrecognized tax benefit may increase or decrease within the next twelve months as a result of audits or audit settlements.