{"id":43744,"date":"2015-09-17T11:25:58","date_gmt":"2015-09-17T16:25:58","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-legal\/contracts\/uncategorized\/tax-allocation-agreement-microsoft-corp-and-expedia-inc.html"},"modified":"2015-09-17T11:25:58","modified_gmt":"2015-09-17T16:25:58","slug":"tax-allocation-agreement-microsoft-corp-and-expedia-inc","status":"publish","type":"corporate_contracts","link":"https:\/\/corporate.findlaw.com\/contracts\/planning\/tax-allocation-agreement-microsoft-corp-and-expedia-inc.html","title":{"rendered":"Tax Allocation Agreement &#8211; Microsoft Corp. and Expedia.Inc."},"content":{"rendered":"<pre>\n                           TAX ALLOCATION AGREEMENT\n                                        \n\n     THIS AGREEMENT is entered into as of the 1st day of October, 1999, by\nand between Microsoft Corporation, a Washington corporation ('MS') and Expedia\nInc. ('Expedia'), a Washington corporation.\n\n                                  WITNESSETH:\n\n     WHEREAS, MS is the common parent corporation of an affiliated group of\ncorporations (the 'MS Affiliated Group') within the meaning of section 1504(a)\nof the Internal Revenue Code of 1986, as amended (the 'Code'), and Expedia is a\nnewly-formed corporation more than 80% owned by MS and therefore a member of the\nMS Affiliated Group; and\n\n     WHEREAS, MS and Expedia deem it appropriate to define the method by which\nthe federal income tax, including for all purposes of this Agreement, the\nalternative minimum tax, and certain state and local tax liabilities of the MS\nAffiliated Group shall be allocated between the parties and the manner in which\nsuch allocated liability shall be paid;\n\n     NOW, THEREFORE, in consideration of the premises and of the mutual\ncovenants and agreements hereinafter set forth, the parties hereto agree as\nfollows:\n     1.  Definitions\n         -----------\n     The following terms as used in this Agreement shall have the meanings set\nforth below:\n\n     (a) 'Additional Amount' shall mean the amount determined under Section 3\nhereof.\n\n                                       1\n\n \n     (b) 'Consolidated Return' shall mean a consolidated federal income tax\nreturn filed pursuant to section 1501 of the Code.\n\n     (c) 'Consolidated Tax Liability' shall mean the consolidated federal income\ntax liability, including for all purposes of this Agreement, alternative minimum\ntax liability, of the MS Affiliated Group for any taxable year for which the MS\nAffiliated Group files a Consolidated Return.\n\n     (d) 'Inherent Bargain Element' shall have the meaning set out in paragraph\n9, below.\n\n     (e) 'IRS' shall mean the Internal Revenue Service.\n\n     (f) 'Member' shall mean each includible member of the MS Affiliated Group.\n\n     (g) 'MS Affiliated Group' shall mean the affiliated group of corporations\nwithin the meaning of section 1504(a) of the Code of which MS is the common\nparent.\n\n     (h) 'Regulations' shall mean the Treasury regulations as in effect from\ntime to time.\n\n     (i) 'Separate Return Tax Liability' shall mean the federal income tax\nliability, including for all purposes of this Agreement, alternative minimum tax\nliability, of a Member computed as if it had filed a separate federal income tax\nreturn for the applicable taxable year with the modifications set forth in\nsection 1.1552-1(a)(2)(ii) of the Regulations.  In addition, for purposes of\nthis definition, each party's Separate Return Tax Liability shall be computed as\nif MS (and not Expedia or its successor) is entitled to deduct on its Separate\nReturn the 'Inherent Bargain Element' in the compensatory stock \n\n                                       2\n\n \noptions assumed by Expedia as explained in detail in paragraph 9, below. If the\ncomputation of a Member's Separate Return Tax Liability as provided herein does\nnot result in a positive amount, such Member's Separate Return Tax Liability\nshall be zero.\n\n          (j) 'Separate Tax Liability' shall mean the amount owed by a Member\nunder Section 2(a) hereof.\n\n          (k) 'Tax Sharing Receivable' shall mean the amount owned to a Member\npursuant to Section 2(a) hereof.\n\n     2.  Separate Tax Liability\n         ----------------------\n\n         (a) If a Consolidated Return is filed by the MS Affiliated Group for\nany taxable year, the Separate Tax Liability of each Member for such taxable\nyear shall, if a positive number, be the sum of (i) the amount determined for\nsuch Member pursuant to paragraph (b) hereof, plus or minus, as the case may be,\n(ii) any increase or reduction in the Member's tentative Separate Tax Liability\nrequired by paragraph (c) hereof. To the extent an allocation to a Member under\nclause (ii) of paragraph (c) hereof reduces a Member's tentative Separate Tax\nLiability to an amount less than zero, such negative amount shall be referred to\nherein as a 'Tax Sharing Receivable.'\n\n         (b) Each Member's tentative Separate Tax Liability shall be an amount\nequal to that portion of the Consolidated Tax Liability for such taxable year\nthat the Member's Separate Return Tax Liability for such taxable year bears to\nthe sum of the Separate Return Tax Liabilities of all Members for such taxable\nyear; provided, however, that such amount shall not exceed the Consolidated Tax\n      --------  -------\nLiability for such taxable year.\n\n          (c) Adjustments for  Additional Amount.  If an Additional Amount is\ndetermined with respect to a Member for a Consolidated Return taxable year, then\n(i) the \n\n                                       3\n\n \ntentative Separate Tax Liability of that Member, as determined pursuant\nto paragraph (b), shall be increased by such Additional Amount; and (ii) the\nSeparate Tax Liability of each of those Members whose tax attributes are\nabsorbed shall be reduced by a pro rata portion of the Additional Amount\nallocated to such Member, which allocation shall be made in a manner that\nreasonably reflects the absorption of the tax attributes; provided, however,\nthat, whenever Expedia is one of the Members entitled to a reduction in its\nSeparate Tax Liability as a consequence of an allocation to Expedia or all or\npart of another Member's Additional Amount, 92.5% of the amount otherwise\nallocable to Expedia shall be allocated to Expedia, and 7.5% to MS.  This\nparagraph (c) and Section 3 hereof are intended to allocate Additional Amounts\nof Separate Return Tax Liability in accordance with the percentage method of\nReg. (S)1.1502-33(d)(3) (using 100% for each Member other than Expedia and 92.5%\nfor Expedia) and, except for the modification in the computation of Separate\nReturn Tax Liability with respect to the Inherent Bargain Element, shall be\ninterpreted to comply in all material respects with that method.\n\n     3.  Additional Amount\n         -----------------\n\n         An 'Additional Amount' exists with respect to a Member if, for any\nConsolidated Return taxable year, that Member's Separate Return Tax Liability\nexceeds the tentative Separate Tax Liability of that Member determined pursuant\nto Section 2(b).\n\n     4.  Payments\n         --------\n\n         For each taxable year with respect to which MS files, or it is\nreasonably anticipated that MS will file, a Consolidated Return which includes\nExpedia, payment of the Separate Tax Liability or Tax Sharing Receivable with\nrespect to such taxable year shall be made as follows:\n\n                                       4\n\n \n     (a) On or before the 15th day of the fourth month of such taxable year, MS\nshall estimate the Separate Tax Liability or Tax Sharing Receivable of each\nMember for such taxable year.\n\n     (b) Expedia shall pay to MS or MS shall pay to Expedia, as the case may be,\non or before each of the due dates for MS to make payment of estimates of its\nfederal income taxes for such taxable year one-fourth of the amount estimated\npursuant to paragraph (a) above (the 'Estimated Amount').  If, after paying any\nsuch installment of the Estimated Amount, MS and Expedia make a new estimate,\nthe amount of each remaining installment (if any) shall be the amount which\nwould have been payable if the new estimate had been made when the first\nestimate for the taxable year was made, increased or decreased as applicable, by\nthe amount computed by dividing:\n\n         (i) the difference between (A) the amount of the Estimated Amount\nrequired to be paid before the date on which the new estimate is made, and (B)\nthe amount of the Estimated Amount which would have been required to be paid\nbefore such date if the new estimated had been made when the first estimate was\nmade, by\n\n         (ii) the number of installments remaining to be paid on or after the\ndate on which the new estimate is made.\n\n     (c) If, after the end of each such taxable year with respect to which MS\nfiled, or reasonably anticipates that it will file, a Consolidated Return which\nincludes Expedia, it is determined that the actual Separate Tax Liability for\nsuch taxable period exceeds the aggregate amount paid pursuant to the\nsubparagraph (b) above with respect to such taxable period, then such excess\nshall be paid on or before the later of (i) the 15th day of the third month\nafter the end of such taxable period, and (ii) the date on which \n\n                                       5\n\n \nsuch excess is finally determined, which shall be not later than sixty (60) days\nafter the Consolidated Return for such taxable period is filed.\n\n     (d) If, after the end of each such taxable year with respect to which MS\nfiled, or reasonably anticipates that it will file, a Consolidated Return which\nincludes Expedia, it is determined that the amount paid pursuant to subparagraph\n(b) above with respect to such taxable period exceeds the actual Separate Tax\nLiability or Tax Sharing Receivable for such taxable period, then such excess\nshall be paid on or before the later of (i) the 15th day of the third month\nafter the end of such taxable period and (ii) the date on which such excess is\nfinally determined, which shall be not later than sixty (60) after the\nConsolidated Return for such taxable period is filed.\n\n     5.  Carrybacks.  The provisions of this Section 5 shall be interpreted in a\n         ----------                                                             \nmanner that does not result in the duplication of any computations required by\nany other provision of this Agreement or in the duplication of any tax sharing\npayment required to be made pursuant to any other provision of this Agreement.\n\n     (a) If the MS Affiliated Group has a consolidated unused investment credit,\na consolidated unused foreign tax credit, a consolidated excess charitable\ncontribution, a consolidated net capital loss or a consolidated net operating\nloss, as such terms are defined in the Regulations (a 'Consolidated Excess\nAmount') for any taxable year, the portion of such Consolidated Excess Amount\nwhich is attributable to a Member (the 'Separate Excess Amount') shall be\ncomputed in accordance with the Consolidated Return Regulations, except that all\nsuch computations shall be made by assuming that MS, not Expedia, is entitled to\nall deductions attributable to the Inherent Bargain Element in the compensatory\nstock options assumed by Expedia.\n\n                                       6\n\n \n     (b) If such Consolidated Excess Amount is carried back to a prior taxable\nyear of the MS Affiliated Group during which Expedia was a Member or was not in\nexistence, then the amounts due under this Agreement for such prior taxable year\nshall be redetermined by taking into account such Consolidated Excess Amount and\nany Separate Excess Amount allocable to such taxable year.\n\n     (c) If such Consolidated Excess Amount is carried back to a prior taxable\nyear of the MS Affiliated Group during which Expedia was in existence but was\nnot a Member, then Expedia shall be entitled to 92.5% of any credit or refund\nattributable to any Separate Excess Amount originated by Expedia which is\ncarried back to such prior taxable year, and the remaining 7.5% of such credit\nor refund shall be retained by MS.\n\n     (d) Payment of any amount due under this Section 5 shall be made on the\ndate that a credit or refund is allowed with respect to the taxable year to\nwhich such payment related and shall include any interest attributable thereto\nunder section 6611 of the Code.\n\n     6.  Subsequent Adjustments\n         ----------------------\n\n     If any adjustments (other than adjustments made pursuant to Section 5\nhereof) are made to the income, gains, losses, deductions or credits of the MS\nAffiliated Group for a taxable year during which Expedia is a Member, whether by\nreason of the filing of an amended return or a claim for refund which respect to\nsuch taxable year or an audit with respect to such taxable year by the IRS, the\namounts due under this Agreement for such taxable year shall be redetermined by\ntaking into account such adjustments.  If, as a result of such redetermination,\nany amounts due under this Agreement shall differ from the amounts previously\npaid, then payment of such difference shall be made (a) in the case of \n\n                                       7\n\n \nan adjustment resulting in a credit or refund, on the date on which such credit\nor refund is allowed with respect to such adjustment, or (b) in the case of an\nadjustment resulting in the assertion of a deficiency, on the date on which such\ndeficiency is paid. Any amounts due under this Section 6 shall include any\ninterest attributable thereto under section 6601 or 6611 of the Code, as the\ncase may be, and any penalties or additional amounts which may be imposed.\n\n      7.  Carrybacks from Separate Return Years\n          -------------------------------------\n\n      If, for any separate return year, as defined in section 1.1502-1 of the\nRegulations, Expedia has a net operating loss, a net capital loss or is entitled\nto credits against tax which, under the applicable provisions of the Code and\nthe Regulations, may be carried back to a taxable year during which Expedia was\na Member, MS shall pay to Expedia 92.5% of the excess, if any, of (i) the amount\nof any refund or credit of Consolidated Tax Liability that MS receives as a\nresult of the carryback of such losses or credits, over (ii) to the extent the\ncarryback is attributable under the principles of Section 9 below to the\nInherent Bargain Element of compensatory stock options assumed by Expedia, the\ntax benefit of that that element of the compensation deductions allowable to\nExpedia.  Such payment shall be made not later than sixty (60) days after MS\nreceives such refund or credit and shall include any interest attributable\nthereto under Section 6611 of the Code.\n\n     8.  Foreign Tax and State and Local Tax\n         -----------------------------------\n\n         (a) Expedia agrees, on the request of MS, to join with MS, or any\ndirect or indirect subsidiary of MS, (i) in any combined or consolidated foreign\ntax return ('Foreign Combined Return') for any taxable year for which MS or any\nsuch direct or indirect subsidiary of MS files a Foreign Combined Return that\nmay include Expedia, and\n\n                                       8\n\n \n(ii) in any combined or consolidated state or local income or franchise tax\nreturn ('State\/Local Combined Return') for any taxable year for which MS or any\nsuch direct or indirect subsidiary of MS files a State\/Local Combined Return\nthat may include Expedia.\n\n         (b) If, at any time from and after the date of this Agreement, Expedia\nis included in any Foreign Combined Return or State\/Local Combined Return that\nincludes MS or any direct or indirect subsidiary of MS, this Agreement shall be\napplied in a like manner to all matters relating to such foreign taxes or state\nor local income or franchise taxes.\n\n     9.  Treatment of Special Items\n         --------------------------\n\n     The parties intend that, for federal and state tax purposes, MS will be\nentitled to the economic benefit under this Agreement of all compensation\ndeductions attributable to the inherent 'bargain element' in any compensatory\noptions previously granted by MS to former MS employees that are employed by\nExpedia (collectively referred to as 'assumed MS options').  The 'Inherent\nBargain Element' in each assumed MS option will be determined on the date\nExpedia employs the optionee and shall be equal to the excess of (i) the fair\nmarket value of the shares (whether shares of MS common stock or Expedia stock)\nto be acquired on exercise of the option, determined as of the date the optionee\nis employed by Expedia, over (ii) the exercise price of the option on the date\nthe optionee is employed by Expedia.  For purposes of this Agreement, all\ndeductions allowable to Expedia or MS, as the case may be, with respect to\nassumed MS options  shall, on a first-in\/first-out basis, be treated as MS\ndeductions for all purposes of this Agreement until the aggregate amount of\nthose deductions equal the aggregate amount of the Inherent Bargain Element\nattributable to all assumed MS options.\n\n                                       9\n\n \n     10.  Determinations\n          --------------\n\n     All determinations required hereunder shall be made by the independent\npublic accountants regularly employed by the MS Affiliated Group at the time\nthat such determination is required to be made or by such other independent tax\nadvisor as may be selected by MS, in the exercise of its absolute discretion.\nSuch determinations shall be binding and conclusive upon the parties for\npurposes hereof.\n\n     11.  Procedural Matters\n          ------------------\n\n          (a) MS shall prepare and file the Consolidated Return and other\nreturns, documents or statements required to be filed with the IRS with respect\nto the determination of federal income tax liability of the MS Affiliated Group.\nIn its sole discretion, MS shall have the right with respect to any Consolidated\nReturns which it has filed or will file, (i) to determine the manner in which\nsuch returns, documents or statement shall be prepared and filed, including,\nwithout limitation, the manner in which any item of income, gain, loss,\ndeduction or credit shall be reported, the elections that will be made by any\nMember, (ii) to contest, compromise or settle any adjustment or deficiency\nproposed, asserted or assessed as a result of any audit or such returns by the\nIRS, (iii) to file, prosecute, compromise or settle any claim for refund and\n(iv) to determine whether any refunds, to which the MS Affiliate Group may be\nentitled, shall be paid by way of refund or credited against the tax liability\nof the MS Affiliated Group. Expedia hereby irrevocably appoints MS as its agent\nand attorney-in-fact to take such actions (including the execution of documents)\nas MS may deem appropriate to effect the foregoing.\n\n                                       10\n\n \n     (b) With respect to any Combined Returns in which Expedia joins with MS\npursuant to Section 8, above, MS shall prepare and file any Combined Returns and\nother returns, documents or statements required to be filed with any state or\nlocal taxing authority.  In its sole discretion, MS shall have the right with\nrespect to any Combined Return Consolidated Returns which it has filed or will\nfile, (i) to determine the manner in which such returns, documents or statement\nshall be prepared and filed, including, without limitation, the manner in which\nany item of income, gain, loss, deduction or credit shall be reported, the\nelections that will be made by any Member, (ii) to contest, compromise or settle\nany adjustment or deficiency proposed, asserted or assessed as a result of any\naudit or such returns by the IRS, (iii) to file, prosecute, compromise or settle\nany claim for refund and (iv) to determine whether any refunds, to which the MS\nAffiliate Group may be entitled, shall be paid by way of refund or credited\nagainst the tax liability of the MS Affiliated Group.  Expedia hereby\nirrevocably appoints MS as its agent and attorney-in-fact to take such actions\n(including the execution of documents) as MS may deem appropriate to effect the\nforegoing.\n\n     12.  Earnings and Profits Determinations.  For purposes of determining the\n          -----------------------------------                                  \nmanner in which taxes are shared in calculating each Member's earnings and\nprofits, MS shall be entitled to use any of the methods permitted by section\n1.1502-33(d) of the Regulations that MS, in the exercise of its absolute\ndiscretion, deems necessary or appropriate.\n\n     13.  Miscellaneous Provisions\n          ------------------------\n\n          (a) This Agreement contains the entire understanding of the parties\nhereto with respect to the subject matter contained herein. No alternation,\namendment or \n\n                                       11\n\n \nmodification of any of the terms of this Agreement shall be valid unless made by\nan instrument signed in writing by an authorized officer of each party hereto.\n\n          (b) This Agreement has been made in and shall be construed and\nenforced in accordance with the laws of the State of Washington from time to\ntime obtaining.\n\n          (c) This Agreement shall be binding upon and inure to the benefit of\neach party hereto and their respective successors and assigns.\n\n          (d) This Agreement may be executed simultaneously in two or more\ncounterparts, each of which shall be deemed an original, but all of which\ntogether shall constitute one and the same instrument.\n\n          (e) All notices and other communications hereunder shall be deemed to\nhave been duly given if delivered by hand or mailed certified or registered\nmail, postage prepaid:\n\n\n              (i)  Microsoft Corporation\n                   One Microsoft Way\n                   Redmond, Washington  98052-6399\n \n                   Telephone  (425) 882-8080\n                   Fax        (425) 936-7329\n \n                   Attention:     Chief Financial Officer\n                                  Treasurer\n\n                   with copy to:  Law and Corporate Affairs\n\n\n                                       12\n\n \n             (ii)  Expedia, Inc.\n                   4200 150th Ave. NE\n                   Redmond, WA 98052\n  \n                   Telephone (425) 705-5161\n                   Fax       (425) 936-7329\n  \n                   Attention:  President\n                               Chief Financial Officer\n\n     (f) The headings of the paragraph of this Agreement are inserted for\nconvenience only and shall not constitute a part hereof.\n\n     IN  WITNESS WHEREOF, the parties hereto have caused this Agreement to be\nduly executed and their respective corporate seals to be affixed hereto, all on\nthe date and year first above written.\n\n\nMICROSOFT CORPORATION                        EXPEDIA INC.\n                                   \n                                   \nBy    \/s\/ Gregory B. Maffei                  By     \/s\/ Richard N. Barton  \n  ______________________________               _______________________________\n  its authorized representative                 its authorized representative\n\n                                       13\n\n\n<\/pre>\n","protected":false},"template":"","meta":{"_acf_changed":false,"_stopmodifiedupdate":true,"_modified_date":"","_cloudinary_featured_overwrite":false},"corporate_contracts_companies":[7491,8221],"corporate_contracts_industries":[9513,9525],"corporate_contracts_types":[9622,9628],"class_list":["post-43744","corporate_contracts","type-corporate_contracts","status-publish","hentry","corporate_contracts_companies-expedia-inc","corporate_contracts_companies-microsoft-corp","corporate_contracts_industries-technology__software","corporate_contracts_industries-transportation__services","corporate_contracts_types-planning","corporate_contracts_types-planning__separation"],"acf":[],"_links":{"self":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts\/43744","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts"}],"about":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/types\/corporate_contracts"}],"wp:attachment":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/media?parent=43744"}],"wp:term":[{"taxonomy":"corporate_contracts_companies","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts_companies?post=43744"},{"taxonomy":"corporate_contracts_industries","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts_industries?post=43744"},{"taxonomy":"corporate_contracts_types","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts_types?post=43744"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}