Income taxes



(in millions)	Fiscal 2017		Fiscal 2016		Fiscal 2015
Income before income taxes:
– US	$	424.0	$	426.1	$	380.8
– Foreign	289.8		231.7		159.8
Total income before income taxes	$	713.8	$	657.8	$	540.6

Current taxation:
– US	$	137.6	$	161.7	$	199.5
– Foreign	3.9		3.5		7.8
Deferred taxation:
– US	28.1		22.3		(47.9		)
– Foreign	1.0		2.4		(0.1		)
Total income taxes	$	170.6	$	189.9	$	159.3

As the statutory rate of corporation tax in Bermuda is 0%, the differences between the US federal income tax rate and the effective tax rates for Signet have been presented below:



	Fiscal 2017		Fiscal 2016		Fiscal 2015
US federal income tax rates	35.0	%	35.0	%	35.0	%
US state income taxes	1.9	%	2.7	%	2.1	%
Differences between US federal and foreign statutory income tax rates	(0.2	)%	(0.5	)%	(0.8	)%
Expenditures permanently disallowable for tax purposes, net of permanent tax benefits	0.4	%	0.5	%	0.8	%
Disallowable transaction costs	0.1	%	2.1	%	0.7	%
Impact of global reinsurance arrangements	(5.4	)%	(2.4	)%	(1.5	)%
Impact of global financing arrangements	(8.2	)%	(8.7	)%	(7.2	)%
Other items	0.3	%	0.2	%	0.4	%
Effective tax rate	23.9	%	28.9	%	29.5	%

In Fiscal 2017, Signet’s effective tax rate was lower than the US federal income tax rate primarily due to the impact of Signet’s global reinsurance and financing arrangements utilized to fund the acquisition of Zale. Signet’s future effective tax rate is dependent on changes in the geographic mix of income.

Deferred taxes

Deferred tax assets (liabilities) consisted of the following:



	January 28, 2017									January 30, 2016
(in millions)	Assets			(Liabilities)			Total			Assets			(Liabilities)			Total
Intangible assets	$	—		$	(160.1	)	$	(160.1	)	$	—		$	(156.2	)	$	(156.2	)
US property, plant and equipment	—			(86.2		)	(86.2		)	—			(73.6		)	(73.6		)
Foreign property, plant and equipment	5.0			—			5.0			5.4			—			5.4
Inventory valuation	—			(289.4		)	(289.4		)	—			(252.8		)	(252.8		)
Allowances for doubtful accounts	60.4			—			60.4			54.1			—			54.1
Revenue deferral	216.0			—			216.0			188.5			—			188.5
Derivative instruments	—			—			—			1.6			—			1.6
Straight-line lease payments	37.5			—			37.5			35.0			—			35.0
Deferred compensation	16.5			—			16.5			13.9			—			13.9
Retirement benefit obligations	—			(6.1		)	(6.1		)	—			(10.3		)	(10.3		)
Share-based compensation	5.7			—			5.7			7.4			—			7.4
Other temporary differences	51.0			—			51.0			52.4			—			52.4
Net operating losses and foreign tax credits	69.2			—			69.2			80.6			—			80.6
Value of foreign capital losses	11.3			—			11.3			13.4			—			13.4
Total gross deferred tax assets (liabilities)	$	472.6		$	(541.8	)	$	(69.2	)	$	452.3		$	(492.9	)	$	(40.6	)
Valuation allowance	(31.5		)	—			(31.5		)	(31.9		)	—			(31.9		)
Deferred tax assets (liabilities)	$	441.1		$	(541.8	)	$	(100.7	)	$	420.4		$	(492.9	)	$	(72.5	)

Disclosed as:
Non-current assets							$	0.7								$	—
Non-current liabilities							(101.4		)							(72.5		)
Deferred tax assets (liabilities)							$	(100.7	)							$	(72.5	)

As of January 28, 2017, Signet had deferred tax assets associated with net operating loss carry forwards of $43.8 million, which are subject to ownership change limitations rules under Section 382 of the Internal Revenue Code (“IRC”) and various US state regulations, and expire between 2017 and 2033. Deferred tax assets associated with foreign tax credits also subject to Section 382 of the IRC total $13.7 million as of January 28, 2017, which expire between 2017 and 2024 and foreign net operating loss carryforwards of $11.7 million, which expire between 2018 and 2037. Additionally, Signet had foreign capital loss carry forward deferred tax assets of $11.3 million (Fiscal 2016: $13.4 million), which are only available to offset future capital gains, if any, over an indefinite period.

The decrease in the total valuation allowance in Fiscal 2017 was $0.4 million (Fiscal 2016: $0.5 million net decrease; Fiscal 2015: $7.5 million net increase). The valuation allowance primarily relates to foreign capital and trading loss carry forwards, foreign tax credits and net operating losses that, in the judgment of management, are not more likely than not to be realized.

Signet believes that it is more likely than not that deferred tax assets not subject to a valuation allowance as of January 28, 2017 will be offset where permissible by deferred tax liabilities or realized on future tax returns, primarily from the generation of future taxable income.

Uncertain tax positions

The following table summarizes the activity related to the Company’s unrecognized tax benefits for US federal, US state and non-US tax jurisdictions:



(in millions)	Fiscal 2017			Fiscal 2016			Fiscal 2015
Unrecognized tax benefits, beginning of period	$	11.4		$	11.4		$	4.6
Acquired existing unrecognized tax benefits	—			—			4.3
Increases related to current year tax positions	2.4			2.0			3.5
Prior year tax positions:
Increases	—			—			—
Decreases	—			—			(0.1		)
Cash settlements	—			—			—
Lapse of statute of limitations	(1.9		)	(1.9		)	(0.4		)
Difference on foreign currency translation	0.1			(0.1		)	(0.5		)
Unrecognized tax benefits, end of period	$	12.0		$	11.4		$	11.4

As of January 28, 2017, Signet had approximately $12.0 million of unrecognized tax benefits in respect to uncertain tax positions. The unrecognized tax benefits relate primarily to financing arrangements and intra-group charges which are subject to different and changing interpretations of tax law. If all of these unrecognized tax benefits were settled in Signet’s favor, the effective income tax rate would be favorably impacted by $11.6 million.

Signet recognizes accrued interest and, where appropriate, penalties related to unrecognized tax benefits within income tax expense. As of January 28, 2017, Signet had accrued interest of $3.1 million and $0.7 million of accrued penalties.

Over the next twelve months management believes that it is reasonably possible that there could be a reduction of some or all of the unrecognized tax benefits as of January 28, 2017 due to settlement of the uncertain tax positions with the tax authorities.

Signet has business activity in all states within the US and files income tax returns for the US federal jurisdiction and all applicable states. Signet also files income tax returns in the UK, Canada and certain other foreign jurisdictions. Signet is subject to examinations by the US federal and state and Canadian tax authorities for tax years ending after November 1, 2011 and is subject to examination by the UK tax authority for tax years ending after February 1, 2014.