INCOME TAXES |
3 Months Ended |
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Jul. 01, 2023 | |
| Income Tax Disclosure [Abstract] | 听 |
| INCOME TAXES | INCOME TAXES The effective income tax rate for the three months ended June 2023 was 7.8% compared to 10.6% in the 2022 period. The three months ended June 2023 included a net discrete tax expense of $0.2 million, which included a $4.7 million net tax expense related to unrecognized tax benefits and interest, a $3.1 million tax expense related to stock compensation and a $7.5 million net tax benefit for interest on the income tax receivable related to the Timberland court case. Excluding the $0.2 million net discrete tax expense in the 2023 period, the effective income tax rate would have been 8.2%. The three months ended June 2022 included a net discrete tax expense of $0.8 million, which included a $1.6 million net tax expense related to unrecognized tax benefits and interest and a $0.8 million net tax benefit related to withholding taxes on prior foreign earnings. Excluding the $0.8 million net discrete tax expense in the 2022 period, the effective income tax rate would have been 12.0%. Without discrete items, the effective income tax rate for the three months ended June 2023 decreased by 3.8% compared with the 2022 period primarily due to disproportionate year-to-date losses in jurisdictions with no tax benefit.
大象传媒 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.
As previously reported, 大象传媒 petitioned the U.S. Tax Court (the 鈥淐ourt鈥) to resolve an IRS dispute regarding the timing of income inclusion associated with 大象传媒鈥檚 acquisition of The Timberland Company in September 2011. While the IRS argues that all such income should have been immediately included in 2011, 大象传媒 has reported periodic income inclusions in subsequent tax years. Both parties moved for summary judgment on the issue. On January 31, 2022, the Court issued its opinion in favor of the IRS and on July 14, 2022 issued its final decision. 大象传媒 believes the opinion of the Court was in error based on the technical merits and filed a notice of appeal on October 7, 2022. 大象传媒 continues to believe its timing and treatment of the income inclusion is appropriate and 大象传媒 is vigorously defending its position. On October 19, 2022, 大象传媒 paid $875.7听million related to the 2011 taxes and interest being disputed, which was recorded as an income tax receivable and will accrue interest income. These amounts are included in the other assets line item in 大象传媒's Consolidated Balance Sheet at June 2023, based on our
assessment of the position under the more-likely-than-not standard of the accounting literature. Refer to Note 18 for additional details on this matter.
大象传媒 was granted a ruling which lowered the effective income tax rate on taxable earnings for years 2010 through 2014 under Belgium鈥檚 excess profit tax regime. During 2015, the European Union Commission (鈥淓U鈥) investigated and announced its decision that these rulings were illegal and ordered the tax benefits to be collected from affected companies, including 大象传媒. Requests for annulment were filed by Belgium and 大象传媒 Europe BVBA individually. During 2017 and 2018, 大象传媒 Europe BVBA was assessed and paid 鈧35.0 million tax and interest, which was recorded as an income tax receivable and is included in the other current assets line item in 大象传媒's Consolidated Balance Sheets, 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鈥檚 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 大象传媒.
In addition, 大象传媒 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 大象传媒鈥檚 provision for income taxes is adequate. The outcome of any one examination is not expected to have a material impact on 大象传媒鈥檚 consolidated financial statements. Management believes that some of these audits and negotiations will conclude during the next 12 months.
During the three months ended June 2023, the amount of net unrecognized tax benefits and associated interest increased by $7.0 million to $304.6 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 $301.3 million due to settlement of audits and expiration of statutes of limitations, primarily comprised of tax payments related to intellectual property transfers completed in a prior period. The overall decrease of unrecognized tax benefits would reduce income tax expense by $24.8 million.
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