INCOME TAXES

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Income Tax Provision

The following table presents the components of our earnings or losses before income taxes for the last three fiscal years:

($ in millions)	2021		2020		2019
United States	$	152	$	(255)	$	190
Non-U.S. jurisdictions	(25)		(85)		35
	$	127	$	(340)	$	225

Our (provision for) or benefit from income taxes for the last three years consisted of:

($ in millions)		2021		2020		2019
Current	– U.S. Federal	$	8	$	31	$	(12)
	– U.S. State	(3)		1		(29)
	– Non-U.S.	(50)		11		(36)
		(45)		43		(77)
Deferred	– U.S. Federal	(36)		26		(28)
	– U.S. State	3		9		17
	– Non-U.S.	4		6		5
		(29)		41		(6)
		$	(74)	$	84	$	(83)

Reconciliation of U.S. Federal Statutory Income Tax Rate to Actual Income Tax Rate

The following table reconciles the U.S. statutory income tax rate to our effective income tax rate:

	2021	2020	2019
U.S. statutory income tax rate	21.0%	21.0%	21.0%
U.S. state income taxes, net of U.S. federal tax benefit	4.3	4.5	4.2
Share-based compensation, net of Section 162(m) limitation	1.9	0.2	0.7
Other permanent differences(1)	(5.5)	(9.1)	5.4
Impact related to the CARES Act of 2020	—	6.0	—
Tax rate changes	(3.8)	0.4	(0.3)
Non-U.S. income (loss)(2)	12.9	4.2	2.2
Tax credits	(0.9)	0.2	(6.6)
Unrecognized tax benefits	17.9	5.2	3.1
Change in valuation allowance(3)	10.4	(7.5)	7.0
Other items	0.2	(0.5)	0.2
Effective rate	58.4%	24.6%	36.9%

_________________________

(1)The 2021 impact is primarily due to the deduction of foreign taxes paid in the U.S. The 2020 impact is primarily attributable to non-deductible goodwill impairment recorded due to the impact of COVID-19. The 2019 impact is primarily due to non-deductible meal and entertainment expenses and new foreign tax provisions, under provisions of the Tax Cuts and Jobs Act of 2017.

(2)The 2021 impact is primarily due to increases in permanent differences in foreign jurisdictions. The 2020 and 2019 impact is attributable to the difference between U.S. and foreign income tax rates and other foreign adjustments.

(3)The 2021 impact is primarily due to new valuation allowances. The 2020 impact is primarily attributable to the increase of the valuation allowance on certain foreign entities. The 2019 impact is primarily attributable to foreign tax credit carryforwards in the branch and treaty baskets and losses and future deductions in foreign tax credit carryforwards in the branch and treaty baskets.

For the years ended December 31, 2021, 2020 and 2019, the provision for income taxes included $4 million, $4 million, and $2 million of excess tax benefits resulting from equity incentive plan activities, respectively.

We conduct business in countries that grant “holidays” from income taxes for ten to thirty-year periods. These holidays expire through 2034.

Other

We are currently completing the purchase price accounting and have established certain non-income tax reserves for the Welk Acquisition, and the reserve will be finalized in 2022. We finalized our purchase price accounting for the ILG Acquisition during 2019 and established a reserve for non-income tax issues related to Legacy-ILG. As of December 31, 2021, the balance of the reserve for non-income tax issues related to our acquisitions was $66 million. We expect that we will be indemnified for liabilities of $5 million in connection with these non-income tax matters pursuant to a Tax Matters Agreement dated May 11, 2016 by and among Starwood Hotels & Resorts Worldwide, Inc., Vistana Signature Experiences, Inc., and Interval Leisure Group, Inc., and consequently have recorded a corresponding indemnification asset.

Deferred Income Taxes

The following table presents the significant components of our deferred tax assets and liabilities:

($ in millions)	At Year-End 2021		At Year-End 2020
Deferred Tax Assets
Inventory	$	69	$	83
Reserves	75		98
Deferred revenue	20		12
Property and equipment	61		72
Net operating loss and capital loss carryforwards	146		98
Tax credits	29		31
Right-of-use asset	24		2
Other, net	74		113
Deferred tax assets	498		509
Less valuation allowance	(122)		(106)
Net deferred tax assets	376		403
Deferred Tax Liabilities
Long lived intangible assets	(231)		(233)
Deferred sales of vacation ownership interests	(414)		(362)
Right-of-use liability	(24)		(2)
Other, net	(9)		(43)
Deferred tax liabilities	(678)		(640)
Total net deferred tax liabilities	$	(302)	$	(237)

Valuation allowances are provided when it is considered more likely than not that deferred tax assets will not be realized. In 2021 we established an additional valuation allowance of $8 million.

We have $111 million of foreign net operating loss carryforwards, some of which begin expiring in 2022; however, a significant portion of these have indefinite carryforward periods. We have $15 million of federal net operating losses and $18 million of state net operating loss carryforwards, of which less than $1 million will expire within the next five years. We have U.S. federal foreign tax credit carryforwards of $20 million, federal capital loss carryforwards of $2 million, and $9 million of state tax credit carryforwards.

As a result of the Tax Cuts and Jobs Act of 2017, distribution of profits from non-U.S. subsidiaries is not expected to cause a significant incremental U.S. tax impact in the future. However, distributions may be subject to non-U.S. withholding taxes if profits are distributed from certain jurisdictions. Our present intention is to indefinitely reinvest residual historic undistributed accumulated earnings associated with certain foreign subsidiaries. We have not provided for deferred taxes on outside basis differences in our investments in these foreign subsidiaries, and such estimates are not practicable to be determined.

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding interest and penalties) is as follows:

($ in millions)	2021		2020		2019
Unrecognized tax benefit at beginning of year	$	14	$	21	$	2
Increases related to tax positions taken during a prior period	12		6		18
Increases related to tax positions taken during the current period	1		2		1
Decreases related to settlements with taxing authorities	—		(14)		—
Decreases as a result of a lapse of the applicable statute of limitations	(1)		(1)		—
Unrecognized tax benefit at end of year	$	26	$	14	$	21

The total unrecognized tax benefits related to uncertain income tax positions, which would affect the effective tax rate if recognized, were $26 million at December 31, 2021 and $14 million at December 31, 2020. The total amount of gross interest and penalties accrued were $42 million at December 31, 2021 and $25 million at December 31, 2020. We anticipate $14 million of unrecognized tax benefits, including interest and penalties, to be indemnified pursuant to a Tax Matters Agreement dated May 11, 2016 by and among Starwood Hotels & Resorts Worldwide, Inc., Vistana Signature Experiences, Inc., and Interval Leisure Group, Inc., and consequently have recorded a corresponding indemnification asset. The unrecognized tax benefit, 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 2007 through 2019. The amount of the unrecognized tax benefit may increase or decrease within the next twelve months as a result of audits or audit settlements.

U.S. Tax Law Update

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 in March 2020, and the Consolidated Appropriations Act, 2021 enacted in December 2020. As of December 31, 2021, we evaluated the income tax provisions of the above mentioned acts and have determined there to be minimal effect on our December 31, 2021 tax rate or the computation of our estimated effective tax rate for the year ended December 31, 2021. We will continue to evaluate the income tax provisions of the above mentioned acts and monitor the developments in the jurisdictions where we have significant operations for tax law changes that could have additional income tax accounting and disclosure implications.