Taxes

The Company is a United Kingdom tax resident and is incorporated in the British Virgin Islands. MKHL’s subsidiaries are subject to taxation in the U.S. and various other foreign jurisdictions, which are aggregated in the “Non-U.S.” information captioned below.

Income before provision for income taxes consisted of the following (in millions):



	Fiscal Years Ended
	March 31, 2018		April 1, 2017		April 2, 2016
U.S.	$	124.1	$	228.4	$	737.5
Non-U.S.	617.7		460.2		434.8
Total income before provision for income taxes	$	741.8	$	688.6	$	1,172.3

The provision for income taxes was as follows (in millions):



	Fiscal Years Ended
	March 31, 2018			April 1, 2017			April 2, 2016
Current
U.S. Federal	$	47.6		$	131.2		$	268.0
U.S. State	15.6			20.4			14.3
Non-U.S.	77.4			45.8			54.2
Total current	140.6			197.4			336.5
Deferred
U.S. Federal	23.9			(34.1		)	0.3
U.S. State	0.9			(5.0		)	1.0
Non-U.S.	(15.7		)	(21.2		)	(3.2		)
Total deferred	9.1			(60.3		)	(1.9		)
Total provision for income taxes	$	149.7		$	137.1		$	334.6

The Company’s provision for income taxes for the years ended March 31, 2018, April 1, 2017 and April 2, 2016 was different from the amount computed by applying statutory U.K. or U.S. federal income tax rates to the underlying income from continuing operations before income taxes and equity in net income of affiliates as a result of the following:



	Fiscal Years Ended
	March 31, 2018		April 1, 2017		April 2, 2016
Provision for income taxes at the U.K. (2018-2017), U.S. (2016) statutory tax rate	19.0	%	20.0	%	35.0	%
State and local income taxes, net of federal benefit	0.5	%	1.3	%	1.2	%
Effects of global financing arrangements	(15.6	)%	(13.7	)%	(2.8	)%
U.S. tax reform	2.0	%	—	%	—	%
Differences in tax effects on foreign income	6.7	%	11.1	%	(5.1	)%
Foreign tax credit	—	%	0.3	%	(0.2	)%
Liability for uncertain tax positions	6.6	%	—	%	—	%
Effect of changes in valuation allowances on deferred tax assets	0.3	%	0.5	%	(0.2	)%
Withholding tax	1.2	%	—	%	—	%
Other	(0.5	)%	0.4	%	0.6	%
Effective tax rate	20.2	%	19.9	%	28.5	%

U.S. Tax Reform

On December 22, 2017, the United States (“U.S.”) government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act includes significant changes to the U.S. corporate income tax system including, among other things, lowering U.S. statutory federal tax rate and implementing a territorial tax system. As the Company has a March 31 fiscal year-end, the lower tax rate will be phased in, resulting in a U.S. statutory federal tax rate of approximately 32% for Fiscal 2018 and a 21% U.S. statutory federal tax rate for fiscal years thereafter. The Tax Act also adds many new provisions, including changes to bonus depreciation, limits on the deductions for executive compensation and interest expense, a tax on global intangible low-taxed income (“GILTI”), the base erosion anti-abuse tax (“BEAT”) and a deduction for foreign derived intangible income (“FDII”). The Company is still evaluating the impact of these provisions of the Tax Act, which do not apply until 2019, and thus, has not adjusted any net deferred tax assets of its foreign subsidiaries for the new tax.

As part of the transition to the new territorial tax system, the Tax Act imposes a tax on the mandatory deemed repatriation of earnings of the Company’s foreign subsidiaries. In addition, the reduction of the U.S. statutory federal tax rate has caused the Company to re-measure its U.S. deferred tax assets and liabilities. In accordance with Accounting Standards Codification (“ASC”) 740, the Company recorded the effects of the tax law change during Fiscal 2018, which resulted in a provisional charge of $21.2 million, comprised of an estimated deemed repatriation tax charge of $3.0 million and an estimated deferred tax charge of $18.2 million due to the re-measurement of the Company’s net U.S. deferred tax assets. Conversely, the Company realized a $6.1 million net benefit for Fiscal 2018 due to the corporate tax rate reductions. While the Tax Act has negatively impacted the Company’s results of operations for Fiscal 2018 by approximately 200 basis points, the lower corporate rate is expected to result in an ongoing reduced tax rate for the Company.

In December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) 118 to provide guidance for companies that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. The final transition impacts of the Tax Act may differ from the above estimate, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, or any changes in accounting standards for income taxes or related interpretations in response to the Tax Act. In addition, once the Company finalizes certain tax positions when it files its 2017 U.S. tax return, it will be able to conclude whether any further adjustments are required to its deferred tax balances in the U.S., as well as to the total liability associated with the one-time mandatory tax. The Company believes that the analysis performed to date is sufficient to calculate a reasonable estimate of the impacts of the Tax Act.

Significant components of the Company’s deferred tax assets (liabilities) consist of the following (in millions):



	Fiscal Years Ended
	March 31, 2018			April 1, 2017
Deferred tax assets
Inventories	$	3.8		$	9.0
Payroll related accruals	1.6			2.2
Deferred rent	24.5			39.5
Net operating loss carryforwards	30.6			17.7
Stock compensation	16.8			26.2
Sales allowances	6.0			10.0
Other	27.0			14.7
	110.3			119.3
Valuation allowance	(13.8		)	(7.2		)
Total deferred tax assets	96.5			112.1

Deferred tax liabilities
Goodwill and intangibles	(240.6		)	(112.3		)
Depreciation	14.0			(2.7		)
Other	—			(3.8		)
Total deferred tax liabilities	(226.6		)	(118.8		)
Net deferred tax liabilities	$	(130.1	)	$	(6.7	)

The Company maintains valuation allowances on deferred tax assets applicable to subsidiaries in jurisdictions for which separate income tax returns are filed and where realization of the related deferred tax assets from future profitable operations is not reasonably assured. Deferred tax valuation allowances increased approximately $7.6 million, $4.4 million and $3.3 million in Fiscal 2018, Fiscal 2017 and Fiscal 2016, respectively. The Company remeasured and reduced valuation allowances amounting to approximately $1.0 million in Fiscal 2018 and released valuation allowances of approximately $0.6 million and $5.6 million in Fiscal 2017 and Fiscal 2016, respectively, as a result of the attainment and expectation of achieving profitable operations in certain countries comprising the Company’s European operations, for which deferred tax valuation allowances had been previously established.

At March 31, 2018, the Company had non-U.S. net operating loss carryforwards of approximately $162.4 million, a portion of which will begin to expire in 2021.

As of March 31, 2018 and April 1, 2017, the Company has liabilities related to its uncertain tax positions, including accrued interest, of approximately $107.4 million and $29.1 million, respectively, which are included in other long-term liabilities in the Company’s audited consolidated balance sheets. The March 31, 2018 balance includes certain tax reserves which were recorded in purchase accounting upon the acquisition of Jimmy Choo, in addition to foreign income tax reserves the Company recorded during Fiscal 2018.

The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was approximately$100.8 million, $26.5 million and $16.8 million as of March 31, 2018, April 1, 2017 and April 2, 2016, respectively. A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding accrued interest, for Fiscal 2018, Fiscal 2017 and Fiscal 2016, are presented below (in millions):



	Fiscal Years Ended
	March 31, 2018					April 1, 2017			April 2, 2016
Unrecognized tax benefits beginning balance	$	26.5				$	16.8		$	19.9
Additions related to prior period tax positions	30.4			⁽¹	⁾	1.7			—
Additions related to current period tax positions	45.0					10.3			5.8
Decreases in prior period positions due to lapses in statute of limitations	(0.7		)			(2.3		)	(5.7		)
Decreases related to audit settlements	(0.4		)			—			(3.2		)
Unrecognized tax benefits ending balance	$	100.8				$	26.5		$	16.8


⁽¹⁾	Primarily relates to the Jimmy Choo acquisition.

The Company classifies interest expense and penalties related to unrecognized tax benefits as components of the provision for income taxes. Interest expense recognized in the consolidated statements of operations and comprehensive income for Fiscal 2018, Fiscal 2017 and Fiscal 2016 was approximately $6.6 million, $2.5 million and $1.7 million, respectively.

The total amount of unrecognized tax benefits relating to the Company’s tax positions is subject to change based on future events including, but not limited to, the settlements of ongoing tax audits and assessments and the expiration of applicable statutes of limitations. The Company anticipates that the balance of gross unrecognized tax benefits, excluding interest and penalties, will be reduced by approximately $30.8 million during the next twelve months, primarily due to the anticipated tax ruling regarding the deductibility of an intercompany loss in one of our subsidiaries. However, the outcomes and timing of such events are highly uncertain and changes in the occurrence, expected outcomes, and timing of such events could cause the Company’s current estimate to change materially in the future.

The Company files income tax returns in the U.S., for federal, state, and local purposes, and in certain foreign jurisdictions. With few exceptions, the Company is no longer subject to examinations by the relevant tax authorities for years prior to its fiscal year ended March 28, 2015.

The Company is in the process of evaluating the impact of the Tax Act on its permanent reinvestment assertion. Prior to the enactment of the Tax Act, the Company’s policy with respect to its undistributed earnings of the U.S. and non-U.S. subsidiaries is to consider those earnings to be either indefinitely reinvested or able to be repatriated tax-neutral, as such, U.S. federal and state income taxes were not previously recorded on these earnings. As substantially all of the Company’s earnings of foreign subsidiaries are deemed to have been repatriated as part of the one-time transition tax, no additional U.S. income taxes or foreign withholding taxes have been provided on these earnings. Undistributed earnings of subsidiaries considered to be either indefinitely reinvested or able to be repatriated tax-neutral amounted to $2.542 billion at March 31, 2018. The Company will complete its evaluation within the measurement period allowed by the Securities and Exchange Commission and record the tax effects of any change in its assertion in the period that its analysis is completed and that it is able to make a reasonable estimate of any unrecognized tax liability related to its foreign investments, if practicable.