INCOME TAXES

3 Months Ended

Mar. 31, 2024

Income Tax Disclosure [Abstract]

INCOME TAXES

5. INCOME TAXES

Our provision for income taxes is calculated using an estimated annual effective tax rate (“AETR”), based upon expected annual income less losses in certain jurisdictions, non-deductible expenses under federal and local tax laws, statutory rates and planned tax strategies in the various jurisdictions in which we operate. Certain items that do not relate directly to ordinary income are excluded from the AETR and included in the period in which they occur.

Our effective tax rate was 43.0% and 32.3% for the three months ended March 31, 2024 and March 31, 2023, respectively.

The effective tax rate for the three months ended March 31, 2024 differed from the blended statutory tax rate for the same period due to income tax adjustments for discrete items, including $11 million primarily related to a $20 million increase to remove the permanent reinvestment assertion for certain non-U.S. entities offset by a $9 million decrease for the expiration of statutes of limitation on certain unrecognized tax benefits. The effective tax rate for the three months ended March 31, 2023 differed from the blended statutory tax rate for the same period due to income tax adjustments for discrete items, including $9 million primarily related to an increase in uncertain tax benefits of $20 million for new unrecognized tax benefits in a foreign jurisdiction, offset by decreases in stock compensation of $7 million and $4 million related to prior year true-up adjustments.

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, 2024.

($ in millions)	Unrecognized Tax Benefits
Balance at December 31, 2023	$	106
Increases to tax positions related to a prior period	2
Decreases to tax positions related to a prior period	(7)
Decreases as a result of a lapse of the applicable statute of limitation	(6)
Balance at March 31, 2024	$	95

The total amount of gross interest and penalties accrued related to unrecognized tax benefits was $41 million at March 31, 2024 and $48 million at December 31, 2023, a decrease of $7 million, which is predominantly attributable to the expiration of statutes of limitation, partially offset by additional interest and penalties related to non-U.S. uncertain tax positions. At March 31, 2024, unrecognized tax benefits (including interest and penalties) of $26 million, net of indemnification, would impact the effective tax rate if recognized.

We anticipate $38 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 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 2007 through 2020. The amount of the unrecognized tax benefits may increase or decrease within the next twelve months as a result of audits or audit settlements.