MARRIOTT VACATIONS WORLDWIDE Corp

5. INCOME TAXES

Income Tax Provision

The following table presents the components of our Income (loss) before income taxes and noncontrolling interests for the last three fiscal years:

Our (provision for) benefit from income taxes consisted of:

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:

(1)The 2023 permanent differences are primarily related to non-taxable income and foreign taxes deducted in the U.S. The 2022 permanent differences primarily relate to non-deductible interest. The 2021 permanent differences primarily relate to the deduction of foreign taxes paid in the U.S.

For the years ended December 31, 2023, 2022 and 2021, our provision for income taxes included $1 million, $3 million, and $4 million of excess tax benefits resulting from equity incentive plan activities, respectively.

We conduct business in countries that grant “holidays” from income taxes forten tothirty-year periods. These holidays expire through 2034.

Other

As of December 31, 2023, the $28 million tax reserve for non-income tax issues is predominantly related to the ILG Acquisition. We expect that we will be indemnified for liabilities of $4 million in connection with the Legacy-ILG 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 2023, the change in our valuation allowance is primarily related to certain existing non-U.S. loss carryforwards where future sources of income are no longer available for realization of the losses.

We have $7 million in foreign capital loss carryforwards and $131 million of foreign net operating loss carryforwards, some of which begin expiring in 2024; however, a significant portion of the net operating loss carryforwards have indefinite carryforward periods. We have $13 million of state net operating loss carryforwards, the majority of which will not expire within the next five years. We have U.S. federal foreign tax credit carryforwards of $20 million and $6 million of state tax credit carryforwards.

We continue to treat the undistributed earnings of certain foreign subsidiaries as permanently reinvested. No taxes have been accrued with respect to these undistributed earnings or any outside basis differences. Distribution of profits from foreign subsidiaries is not expected to cause a significant incremental U.S. tax impact in the future; an estimate of the U.S. tax impact is not practicable to determine.

Unrecognized Tax Benefits

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

The increase in the unrecognized tax benefits during 2023 is primarily related to $80 million for a proposed tax method change for pre-acquisition Welk. Unrecognized tax benefits (excluding interest and penalties) of $26 million would impact the effective tax rate if recognized.

The total amount of gross interest and penalties accrued relating to unrecognized tax benefits was $48 million at December 31, 2023 and $28 million at December 31, 2022, which is predominantly attributable to non-U.S. jurisdictions.

We anticipate $36 million of unrecognized tax benefits, including interest and penalties, will 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.