Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.22.1
INCOME TAXES
 12 Months Ended
Apr. 02, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The provision for income taxes was computed based on the following amounts of income from continuing operations before income taxes:
Year Ended March
(In thousands) 2022 2021 2020
Domestic $ 518,386  $ (152,073) $ (91,063)
Foreign 1,004,864  608,545  818,271 
Income before income taxes $ 1,523,250  $ 456,472  $ 727,208 
The provision for income taxes consisted of:
Year Ended March
(In thousands) 2022 2021 2020
Current:
Federal $ 231,469  $ 6,373  $ 12,926 
Foreign 196,540  109,543  157,052 
State 36,461  25,462  2,583 
464,470  141,378  172,561 
Deferred:
Federal and state (177,381) (24,133) 38,511 
Foreign 19,892  (15,679) (113,010)
(157,489) (39,812) (74,499)
Income taxes $ 306,981  $ 101,566  $ 98,062 
On May 19, 2019, Switzerland voted to approve the Federal Act on Tax Reform and AHV Financing ("Swiss Tax Act"). Provisions of the Swiss Tax Act were enacted for Swiss federal purposes during the second quarter of Fiscal 2020, and later enacted for certain cantons during the fourth quarter. These provisions resulted in adjustments to deferred tax assets and liabilities such that a net tax benefit of $93.6 million was recorded for the year ended March 2020. In the fourth quarter of Fiscal 2022, $67.4 million net tax expense was recorded related to changes to these previously recorded deferred tax assets.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act ("U.S. Tax Act"), which included a transition tax under Section 965. The income tax payable attributable to the transition tax is due over an 8-year period that began in 2018. At the end of Fiscal 2022, a noncurrent income tax payable of approximately $246.4 million attributable to the transition tax is reflected in the other liabilities line item of the Consolidated Balance Sheet.
The differences between income taxes computed by applying the statutory federal income tax rate and income tax expense reported in the consolidated financial statements are as follows:
Year Ended March
(In thousands) 2022 2021 2020
Tax at federal statutory rate $ 319,882  $ 95,859  $ 152,714 
State income taxes, net of federal tax benefit 16,641  13,771  14,363 
Foreign rate differences (62,928) (5,605) (22,038)
Tax reform 67,358  —  (93,598)
Goodwill impairment —  2,631  45,613 
Stock compensation (federal) (1,977) (4,783) (12,245)
Non-taxable contingent consideration adjustments (28,090) —  — 
Other (3,905) (307) 13,253 
Income taxes $ 306,981  $ 101,566  $ 98,062 

Income tax expense includes tax benefits of $2.2 million, $3.6 million and $13.4 million in the years ended March 2022, 2021 and 2020, respectively, from favorable audit outcomes on certain tax matters and from expiration of statutes of limitations.
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.
In addition, VF has been granted a lower effective income tax rate on taxable earnings in one foreign jurisdiction that expired at the end of June 2020 and another foreign jurisdiction that will expire in March 2026. These lower rates, when compared with the country statutory rates, resulted in income tax reductions of $0.4 million ($0.00 per diluted share) in the year ended March 2022, $3.8 million ($0.01 per diluted share) in the year ended March 2021 and $15.3 million ($0.04 per diluted share) in the year ended March 2020.
Deferred income tax assets and liabilities consisted of the following:
(In thousands) March 2022 March 2021
Deferred income tax assets:
Inventories $ 38,661  $ 33,023 
Deferred compensation 32,349  39,794 
Other employee benefits 16,870  32,770 
Stock compensation 27,610  25,258 
Operating lease liabilities 327,668  354,747 
Other accrued expenses 132,747  148,790 
Outside basis difference on assets held-for-sale —  228,735 
Interest expense limitation carryforward 1,711  20,503 
Capital loss carryforwards 166,622  2,458 
Operating loss carryforwards 512,388  323,902 
Gross deferred income tax assets 1,256,626  1,209,980 
Valuation allowances (616,533) (500,601)
Net deferred income tax assets 640,093  709,379 
Deferred income tax liabilities:
Depreciation 10,768  52,564 
Intangible assets 361,182  414,321 
Operating lease right-of-use assets 295,227  318,747 
Other deferred tax liabilities 22,337  65,222 
Deferred income tax liabilities 689,514  850,854 
Net deferred income tax assets (liabilities) $ (49,421) $ (141,475)
Amounts included in the Consolidated Balance Sheets:
Other assets (Note 11) $ 100,980  $ 201,237 
Other liabilities (Note 15) (150,401) (342,712)
$ (49,421) $ (141,475)

At the end of Fiscal 2022, the Company is not asserting indefinite reinvestment with regards to short-term liquid assets of its foreign subsidiaries. All other foreign earnings, including basis differences of certain foreign subsidiaries, continue to be considered indefinitely reinvested. As of the end of Fiscal 2022, there was approximately $340.0 million of undistributed earnings of international subsidiaries which could result in additional U.S. income or other taxes. The Company has not determined the deferred tax liability associated with these undistributed earnings and basis differences, as such determination is not practicable.
VF has potential tax benefits totaling $491.2 million for foreign operating loss carryforwards, of which $109.7 million have an unlimited carryforward life. In addition, there are $166.6 million of potential tax benefits for capital loss carryforwards that begin to expire in 2023 and $21.2 million of potential tax benefits for state operating loss and credit carryforwards that expire between 2023 and 2041.
A valuation allowance has been provided where it is more likely than not that the deferred tax assets related to those operating loss carryforwards will not be realized. Valuation allowances totaled $452.0 million for available foreign operating loss carryforwards, $152.2 million for available capital loss carryforwards, $4.3 million for available state operating loss and credit carryforwards, and $8.0 million for other foreign deferred income tax assets. During Fiscal 2022, VF had a net increase in valuation allowances of $149.7 million related to capital loss carryforwards, a net decrease of $1.8 million related to state operating loss and credit carryforwards and an increase of $192.9 million related to foreign operating loss carryforwards and other foreign deferred tax assets, inclusive of foreign currency effects. VF also decreased the valuation allowance by $224.9 million related to the basis difference on assets held-for-sale.
A reconciliation of the change in the accrual for unrecognized income tax benefits is as follows:
(In thousands) Unrecognized
Income Tax
Benefits		 Accrued
Interest
and Penalties		 Unrecognized
Income Tax
Benefits
Including Interest
and Penalties
Balance, March 2019 $ 188,225  $ 26,565  $ 214,790 
Additions for current year tax positions 20,328  —  20,328 
Additions for prior year tax positions 3,136  10,029  13,165 
Reductions for prior year tax positions (3,521) (254) (3,775)
Reductions due to statute expirations (11,135) (1,817) (12,952)
Payments in settlement (664) (146) (810)
Decrease due to divestiture (11,619) (3,723) (15,342)
Currency translation (27) (42) (69)
Balance, March 2020 184,723  30,612  215,335 
Additions for current year tax positions 6,609  —  6,609 
Additions for prior year tax positions 20,950  8,064  29,014 
Reductions for prior year tax positions (2,073) (1,399) (3,472)
Reductions due to statute expirations (761) (216) (977)
Payments in settlement (3,464) (650) (4,114)
Additions due to acquisitions 17,066  1,673  18,739 
Currency translation (40) 57  17 
Balance, March 2021 223,010  38,141  261,151 
Additions for current year tax positions 28,098  —  28,098 
Additions for prior year tax positions (a)
112,850  32,642  145,492 
Reductions for prior year tax positions (895) (532) (1,427)
Reductions due to statute expirations (5,803) (840) (6,643)
Payments in settlement (21,278) (730) (22,008)
Decrease due to divestiture (506) (340) (846)
Currency translation 186  (43) 143 
Balance, March 2022 $ 335,662  $ 68,298  $ 403,960 
(a)The year ended March 2022 includes an increase resulting from updated estimates related to intellectual property transfers completed in a prior period.
(In thousands) March 2022 March 2021
Amounts included in the Consolidated Balance Sheets:
Unrecognized income tax benefits, including interest and penalties $ 403,960  $ 261,151 
Less deferred tax benefits 126,179  70,954 
Total unrecognized tax benefits $ 277,781  $ 190,197 

The unrecognized tax benefits of $277.8 million at the end of Fiscal 2022, if recognized, would reduce the annual effective tax rate.
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.
As previously reported, VF petitioned the U.S. Tax Court (the “Court”) to resolve an Internal Revenue Service ("IRS") dispute
regarding the timing of income inclusion associated with VF’s acquisition of The Timberland Company in September 2011. While the IRS argues that all such income should have been immediately included in 2011, VF has reported periodic income inclusions in subsequent tax years. Both parties moved for summary judgment on the issue, and on January 31, 2022, the Court issued its opinion in favor of the IRS. VF believes the opinion of the Court was in error based on the technical merits and intends to appeal. VF continues to believe its timing and treatment of the income inclusion is appropriate and VF is
vigorously defending its position. No impact of the Court opinion has been recorded in the consolidated financial statements based on our assessment of the position under the more-likely-than-not standard of the accounting literature. Refer to Note 21 for additional details on this matter.
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. Management also believes that it is reasonably possible that the amount of unrecognized income tax benefits may decrease by $255.9 million within the next 12 months due to settlement of audits and expiration of statutes of limitations, $11.6 million of which would reduce income tax expense.