|3 Months Ended|
Jun. 29, 2019
|Income Tax Disclosure [Abstract]|
|INCOME TAXES||INCOME TAXES
The effective income tax rate for the three months ended June 2019 was 21.5% compared to 10.8% in the 2018 period. The three months ended June 2019 included a discrete tax benefit of $2.2 million related to stock compensation and a discrete tax expense of $2.2 million related to unrecognized tax benefits and interest. The 2018 period included a net discrete tax benefit of $6.4 million, which included a $5.7 million tax benefit related to stock compensation, $0.6 million of net tax expense related to unrecognized tax benefits and interest, a $2.9 million net tax benefit related to adjustments to provisional amounts recorded in 2017 under the Tax Act, and $1.6 million of tax expense related to adjustments to previously recognized state income tax credits. The $6.4 million net discrete tax benefit in the 2018 period reduced the effective income tax rate by 9.3%. Without discrete items, the effective income tax rate for the three months ended June 2019 increased by 1.4% compared with the 2018 period primarily due to a lower percentage of income in lower tax rate jurisdictions.
VF files a consolidated U.S. federal income tax return, as well as separate and combined income tax returns in numerous state and international jurisdictions. In the U.S., the Internal Revenue Service ("IRS") examinations for tax years through 2014 have been effectively settled. The examination of Timberland’s 2011 tax return is ongoing.
In addition, VF is currently subject to examination by various state and international tax authorities. Management regularly assesses the potential outcomes of both ongoing and future examinations for the current and prior years, and has concluded that VF’s provision for income taxes is adequate. The outcome of any one examination is not expected to have a material impact on VF’s consolidated financial statements. Management believes that some of these audits and negotiations will conclude during the next 12 months.
VF was granted a ruling which lowered the effective income tax rate on taxable earnings for years 2010 through 2014 under Belgium’s excess profit tax regime. In February 2015, the European Union Commission (“EU”) opened a state aid investigation into Belgium’s rulings. On January 11, 2016, the EU announced its decision that these rulings were illegal and ordered that tax benefits granted under these rulings should be collected from the affected companies, including VF.
On March 22, 2016, the Belgium government filed an appeal seeking annulment of the EU decision. Additionally, on June 21, 2016, VF Europe BVBA filed its own application for annulment of the EU decision.
On December 22, 2016, Belgium adopted a law which entitled the Belgium tax authorities to issue tax assessments, and demand timely payments from companies which benefited from the excess profits regime. On January 10, 2017, VF Europe BVBA received an assessment for €31.9 million tax and interest related to excess profits benefits received in prior years. VF Europe BVBA remitted €31.9 million ($33.9 million) on January 13, 2017, which was recorded as an income tax receivable based on the expected success of the aforementioned requests for annulment. An additional assessment of €3.1 million ($3.8 million) was received and paid in January 2018. On February 14, 2019 the General Court annulled the EU decision and on April 26, 2019 the EU appealed the General Court’s annulment. Both listed requests for annulment remain open and unresolved. If this matter is adversely resolved, these amounts will not be collected by VF.
During the three months ended June 2019, the amount of net unrecognized tax benefits and associated interest increased by $6.3 million to $180.2 million. Management believes that it is reasonably possible that the amount of unrecognized income tax benefits and interest may decrease during the next 12 months by approximately $24.9 million related to the completion of examinations and other settlements with tax authorities and the expiration of statutes of limitations, of which $23.8 million would reduce income tax expense.
On May 19, 2019, Switzerland voted to approve the Federal Act on Tax Reform and AHV Financing ("Swiss Tax Act"). Due to various factors, the Swiss Tax Act was not considered enacted for GAAP purposes during the three months ended June 2019. The Company is currently evaluating the Swiss Tax Act and the associated tax effects will be reflected in the period the Swiss Tax Act is considered enacted. We believe the Swiss Tax Act will have a material impact to the Company's tax expense.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef