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 28.7% and 36.1% for the three months ended September 30, 2024 and September 30, 2023, respectively, and 32.1% and 34.3% for the nine months ended September 30, 2024 and September 30, 2023, respectively.

The effective tax rate for the three months ended September 30, 2024 differed from the blended statutory tax rate for the same period due to income tax adjustments for discrete items, including an $11 million decrease related to changes in valuation allowances on certain deferred tax assets in non-U.S. jurisdictions and a $6 million decrease primarily attributable to the expiration of statutes of limitation on certain unrecognized tax benefits, partially offset by an $8 million increase to remove the permanent reinvestment assertion for our earnings in certain non-U.S. entities and an increase of $3 million for deferred non-U.S. withholding taxes.

The effective tax rate for the three months ended September 30, 2023 differed from the blended statutory tax rate for the same period due to losses in non-U.S. jurisdictions for which we do not realize tax benefits.

The effective tax rate for the nine months ended September 30, 2024 differed from the blended statutory tax rate for the same period due to income tax adjustments for discrete items, including a $27 million decrease attributable to the expiration of statutes of limitation on certain unrecognized tax benefits (inclusive of interest and penalties) and an $8 million net decrease related to changes in valuation allowances in non-U.S. jurisdictions, partially offset by a $28 million increase to remove the permanent reinvestment assertion for our earnings in certain non-U.S. entities and a $3 million increase for deferred non-U.S. withholding taxes.

The effective tax rate for the nine months ended September 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 nine months ended September 30, 2024.

The total amount of gross interest and penalties accrued related to unrecognized tax benefits was $29 million at September 30, 2024 and $48 million at December 31, 2023, a decrease of $19 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 September 30, 2024, unrecognized tax benefits (including interest and penalties) of $13 million, net of indemnification, would impact the effective tax rate if recognized.

We anticipate $32 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.