Income Taxes

6 Months Ended

Jul. 03, 2022

Income Tax Disclosure [Abstract]

Income Taxes

17.Income Taxes

In July 2021, the Company carried out a legal entity restructuring which resulted in the formation of Membership Collective Group Inc., a US domiciled corporation, as the parent entity of the Company. Prior to July 2021, the parent entity of the Company was a UK domiciled entity.

For the 13 weeks and 26 weeks ended July 3, 2022, there have been no material changes in the Company’s estimates or provisions for income taxes recorded in the unaudited condensed consolidated balance sheet. The Company has generated incremental deferred tax assets relating to tax losses, share-based compensation, and excess interest of $15 million and $25 million based on the results for the 13 weeks and 26 weeks ended July 3, 2022. As a consequence of the IPO, the Company anticipates that tax deductions will be available in certain jurisdictions in connection with share-based compensation and a deferred tax asset has therefore been recognized. Full valuation allowances have been recorded against the incremental deferred tax assets recognized for tax losses, share-based compensation, and excess interest. The level of unrecognized tax benefits has increased by $5 million and $11 million in the 13 weeks and 26 weeks ended July 3, 2022, respectively. There is no impact on the Company’s effective tax rate for the 13 weeks and 26 weeks ended July 3, 2022 as there is a corresponding reduction in the valuation allowance applied for the period.

The effective tax rate for the 13 weeks ended July 3, 2022 was (0.61)%, compared to (0.01)% for the 13 weeks ended July 4, 2021. The effective tax rate for the 26 weeks ended July 3, 2022 was (0.04)% compared to 0.54% for the 26 weeks ended July 4, 2021. The effective tax rate for the 13 weeks and 26 weeks ended July 3, 2022 differs from the US statutory rate of 21% primarily due to a full valuation allowance being recorded against the tax losses and other deferred tax assets generated during the period then ended.