INCOME TAXES |
9 Months Ended |
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Jan. 01, 2022 | |
| Income Tax Disclosure [Abstract] | |
| INCOME TAXES | INCOME TAXES
The effective income tax rate for the nine months ended December 2021 was 16.0% compared to 20.2% in the 2020 period. The nine months ended December 2021 included a net discrete tax expense of $43.7 million, which included a $92.3 million net tax expense related to unrecognized tax benefits and interest, a $9.6 million net tax benefit related to return to accrual adjustments, a $35.2 million net tax benefit related to withholding taxes on prior foreign earnings, a $1.7 million tax benefit related to stock compensation, and a $2.4 million net tax benefit related to tax rate change on deferred tax items. Excluding the $43.7 million net discrete tax expense in the 2021 period, the effective income tax rate would have been 12.8%. The nine months ended December 2020 included a net discrete tax expense of $3.7 million, which included a $15.2 million net tax expense related to unrecognized tax benefits and interest, a $2.3 million tax benefit related to stock compensation, a $4.9 million net tax benefit related to return to accrual adjustments, and a $4.3 million net tax benefit related to withholding taxes on prior foreign earnings. Excluding the $3.7 million net discrete tax expense in the 2020 period, the effective income tax rate would have been 19.2%. Without discrete items, the effective income tax rate for the nine months ended December 2021 decreased by 6.4% compared with the 2020 period primarily due to losses generated in the prior year and more favorable expectations to utilize foreign tax credits generated in the current year.
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. 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. During 2015, the European Union Commission (“EU”) investigated and announced its decision that these rulings were illegal and ordered the tax benefits to be collected from affected companies, including VF. Requests for annulment were filed by Belgium and VF Europe BVBA individually. During 2017 and 2018, VF Europe BVBA was assessed and paid €35.0 million tax and interest, which was recorded as an income tax receivable based on the expected success of the requests for annulment. During 2019, the General Court annulled the EU decision and the EU subsequently appealed the General Court’s annulment. In September 2021, the General Court's judgment was set aside by the Court of Justice of the EU and the case was sent back to the General Court to determine whether the excess profit tax regime amounted to illegal State aid. The case remains open and unresolved. If this matter is adversely resolved, these amounts will not be collected by VF.
During the nine months ended December 2021, the amount of net unrecognized tax benefits and associated interest increased by $98.9 million to $289.1 million, which includes an $87.1 million increase in the three months ended December 2021 resulting from updated estimates related to intellectual property transfers completed in a prior period. 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 $270.4 million related to the completion of examinations and other settlements with tax authorities and the expiration of statutes of limitations, of which $10.6 million would reduce income tax expense.
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