MARRIOTT VACATIONS WORLDWIDE Corp

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 22.0% and 35.4% for the three months ended June 30, 2024 and June 30, 2023, respectively, and 35.2% and 33.9% for the six months ended June 30, 2024 and June 30, 2023, respectively.

The effective tax rate for the three months ended June 30, 2024 differed from the blended statutory tax rate for the same period due to income tax adjustments for discrete items, including a $13 million decrease for the expiration of statutes of limitation on certain unrecognized tax benefits, partially offset by a $4 million increase related to prior year true-up adjustments in non-U.S. jurisdictions.

The effective tax rate for the three months ended June 30, 2023 differed from the blended statutory tax rate for the same period due to income tax adjustments for discrete items, including a $5 million adjustment in stock compensation.

The effective tax rate for the six months ended June 30, 2024 differed from the blended statutory tax rate for the same period due to income tax adjustments for discrete items, including a $20 million increase to remove the permanent reinvestment assertion for certain non-U.S. entities and a $5 million increase related to prior year true-up adjustments in non-U.S. jurisdictions, partially offset by a $22 million decrease for the expiration of statutes of limitation on certain unrecognized tax benefits.

The effective tax rate for the six months ended June 30, 2023 differed from the blended statutory tax rate for the same period due to income tax adjustments for discrete items, including an $18 million increase to pre-acquisition reserves for unrecognized tax benefits.

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, 2024.

The total amount of gross interest and penalties accrued related to unrecognized tax benefits was $33 million at June 30, 2024 and $48 million at December 31, 2023, a decrease of $15 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 June 30, 2024, unrecognized tax benefits (including interest and penalties) of $16 million, net of indemnification, would impact the effective tax rate if recognized.

We anticipate $34 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.