INCOME TAXES |
9 Months Ended |
|---|---|
Dec. 30, 2023 | |
| Income Tax Disclosure [Abstract] | |
| INCOME TAXES | INCOME TAXES The effective income tax rate for the nine months ended December 2023 was 412.9% compared to (28.6)% in the 2022 period. The nine months ended December 2023 included a net discrete tax expense of $693.6 million, primarily related to the tax effects of decisions in the Timberland tax case and Belgium excess profits ruling, which are discussed further below. Excluding the $693.6 million net discrete tax expense in the 2023 period, the effective income tax rate would have been 18.7%. The nine months ended December 2022 included a net discrete tax benefit of $98.8 million, which primarily related to the Internal Revenue Service ("IRS") examinations for tax year 2017 and short-tax year 2018 resulting in a $94.9 million favorable adjustment to VF's transition tax liability under the Tax Cuts and Jobs Act. Excluding the $98.8 million net discrete tax benefit in the 2022 period, the effective income tax rate would have been 9.5%. Without discrete items, the effective income tax rate for the nine months ended December 2023 increased by 9.2% compared with the 2022 period primarily due to the jurisdictional mix of earnings and losses. As previously reported, VF petitioned the U.S. Tax Court (the “Tax Court”) to resolve an IRS dispute regarding the timing of income inclusion associated with VF’s acquisition of The Timberland Company in September 2011. While the IRS argued that all such income should have been immediately included in 2011, VF reported periodic income inclusions in subsequent tax years. In Fiscal 2023, the Tax Court issued its final decision in favor of the IRS, which was appealed by VF. On October 19, 2022, VF paid $875.7 million related to the 2011 taxes and interest being disputed, which was recorded as an income tax receivable and began to accrue interest income. These amounts were included in the other assets line item in VF's Consolidated Balance Sheet, based on our assessment of the position under the more-likely-than-not standard of the accounting literature. On September 8, 2023, the U.S. Court of Appeals for the First Circuit (“Appeals Court”) upheld the Tax Court’s decision in favor of the IRS. As a result of the Appeals Court decision, VF determined that its position no longer met the more-likely-than-not threshold, and thus wrote off the related income tax receivable and associated interest and recorded $690.0 million of income tax expense in the second quarter of Fiscal 2024. This amount includes the reversal of $19.6 million of interest income, of which $7.5 million was recorded in the first quarter of Fiscal 2024. This amount reflects the total estimated net impact to VF’s tax expense, which includes the expected reduction in taxes paid on the periodic inclusions that VF has reported, release of related deferred tax liabilities, and consideration of indirect tax effects resulting from the decision. The estimated impact is subject to future adjustments based on finalization with tax authorities.
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. During 2017 and 2018, VF Europe BVBA was assessed and paid €35.0 million in tax and interest, which was recorded as an income tax receivable and was included in the other current assets line item in VF's Consolidated Balance Sheets, based on the expected success of the requests for annulment. After subsequent annulments and appeals, the General Court confirmed the decision of the EU on September 20, 2023. As a result, VF wrote off the related income tax receivable and recorded a benefit for the associated foreign tax credit, resulting in $26.1 million of net income tax expense in the second quarter of Fiscal 2024.
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 IRS examinations for tax years through 2015 have been effectively settled.
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.
During the nine months ended December 2023, the amount of net unrecognized tax benefits and associated interest increased by $0.9 million to $298.5 million, which includes a net reduction of $183.0 million due to settlement with the tax authorities related to intellectual property transfers completed in a prior period and a net increase of $192.5 million due to uncertainty in the application of court decisions upheld upon appeal, which were recorded in the second quarter of Fiscal 2024. 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 $29.4 million due to settlement of audits and expiration of statutes of limitations, of which $25.7 million would reduce income tax expense.
|