Income Taxes |
9 Months Ended |
|---|---|
Sep. 30, 2017 | |
| Income Tax Disclosure [Abstract] | |
| Income taxes |
Income Taxes
The Company calculates its interim income tax provision by applying its best estimate of the annual expected effective tax rate to its ordinary year-to-date income or loss. The tax or benefit related to significant unusual items that will be separately reported are individually computed and recognized in the interim period in which those items occur.
The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in foreign jurisdictions, permanent and temporary differences as a result of differences between amounts measured and recognized in accordance with tax laws and financial accounting standards, and the likelihood of recovering deferred tax assets. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the tax environment changes. To the extent that the estimated annual effective tax rate changes during a quarter, the effect of the change on the prior quarters is included in the tax expense for the current quarter.
For the three months ended September 30, 2017, the Company recorded a tax provision of $58 million, which represented an effective tax rate of 25.9%. For the nine months ended September 30, 2017, the Company recorded a tax provision of $225 million, which represented an effective tax rate of 33.2%. These rates differ from the U.S. federal income tax rate of 35.0% due primarily to the impact of discrete permanent differences related to foreign currency losses realized for tax purposes offset by state tax expense.
QVC is party to ongoing discussions with the Internal Revenue Service under the Compliance Assurance Process audit program. The Company files Federal tax returns on a consolidated basis with its parent company, Liberty. The Company, or one of its subsidiaries, files income tax returns in various states and foreign jurisdictions. As of September 30, 2017, the income tax returns of the Company, or one of its subsidiaries, were under examination in Germany for 2012 through 2014 and the U.K. for 2015. In addition, as of September 30, 2017, income tax returns of the Company, or one of its subsidiaries, were under examination in California, New York State, and Pennsylvania.
The Company is a party to a Tax Liability Allocation and Indemnification Agreement (the “Tax Agreement”) with Liberty. The Tax Agreement establishes the methodology for the calculation and payment of income taxes in connection with the consolidation of the Company with Liberty for income tax purposes. Generally, the Tax Agreement provides that the Company will pay Liberty an amount equal to the tax liability, if any, that it would have if it were to file as a consolidated group separate and apart from Liberty, with exceptions for the treatment and timing of certain items, including but not limited to deferred intercompany transactions, credits, and net operating and capital losses. To the extent that the separate company tax expense is different from the payment terms of the Tax Agreement, the difference is recorded as either a dividend or capital contribution.
The amount of the tax-related balances due from Liberty at September 30, 2017 were $3 million. The amount of tax related balances due to Liberty at December 31, 2016 were $75 million. These amounts were included in accrued liabilities in the accompanying condensed consolidated balance sheets.
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