|9 Months Ended|
Dec. 28, 2019
|Income Tax Disclosure [Abstract]|
On May 19, 2019, Switzerland voted to approve the Federal Act on Tax Reform and AHV Financing ("Swiss Tax Act"). Certain provisions of the Swiss Tax Act were enacted during the second quarter of Fiscal 2020, which resulted in adjustments to deferred tax assets and liabilities. A net tax benefit of $164.4 million was recorded during the second quarter. Subsequent to the end of VF's third quarter, the Swiss Tax Act was enacted for purposes of GAAP in the canton of Ticino. As a result, it is expected that adjustments to the amounts previously recorded will be made in VF's fourth quarter, which is the period of enactment in Ticino.
The effective income tax rate for the nine months ended December 2019 was 2.1% compared to 15.5% in the 2018 period. The nine months ended December 2019 included a net discrete tax benefit of $169.7 million, which primarily related to the $164.4 million tax benefit recognized due to the enactment of the Swiss Tax Act. The $169.7 million net discrete tax benefit in the 2019 period reduced the effective income tax rate by 13.9%. The 2018 period included a net discrete tax expense of $14.8 million, which primarily related to a $17.8 million tax benefit related to stock compensation, a $3.4 million net tax expense related to unrecognized tax benefits and interest, a $5.9 million net tax expense related to return to accrual adjustments and a $23.3 million net tax expense related to adjustments to provisional amounts recorded in 2017 under the U.S. Tax Act. The $14.8 million net discrete tax expense in the 2018 period increased the effective income tax rate by 1.4%. Without discrete items, the effective income tax rate for the nine months ended December 2019 increased by 1.9% 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 2015 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. Additionally, the EU has initiated proceedings related to individual rulings granted by Belgium, including the ruling granted to VF. If this matter is adversely resolved, these amounts will not be collected by VF.
During the nine months ended December 2019, the amount of net unrecognized tax benefits and associated interest decreased by $24.4 million to $149.5 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 $15.1 million related to the completion of examinations and other settlements with tax authorities and the expiration of statutes of limitations, of which $11.0 million would reduce income 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