GLOBAL TAX STRATEGY PUBLICATION DATE: JANUARY 29, 2019
This Tax Strategy is published by Capri Hldings Limited, a cmpany tax resident f the United Kingdm and the head f the Capri grup f cmpanies ( Capri r the Cmpany ) published n January 29, 2019. This Tax Strategy applies t all cmpanies frming part f the Capri grup (hereinafter referred t as the Grup r the Capri Grup, we r ur ). The Tax Strategy requires strng gvernance and cnsideratin f ur reputatin, while delivering value t sharehlders. Michael Krs (UK) Ltd., Michael Krs (UK) Hldings Ltd., Michael Krs (UK) Internatinal Limited, Michael Krs (UK) Intermediate Ltd., Versace UK Plc, and Jimmy Ch Grup Limited cnsider this publicatin as cmplying with their duty under paragraphs 19(2) and 22(2) (respectively) in Schedule 19 f the Finance Act 2016 fr the financial year ending March 31, 2019. Overview Capri Hldings Limited is a glbal fashin luxury grup, cnsisting f icnic brands that are industry leaders in design, style and craftsmanship. Its brands cver the full spectrum f fashin luxury categries including wmen s and men s accessries, ftwear and ready-t-wear as well as wearable technlgy, watches, jewelry, eyewear and a full line f fragrance prducts. The cmpany s gal is t cntinue t extend the glbal reach f its brands while ensuring that they maintain their independence and exclusive DNA. Capri Hldings Limited is publicly listed n the New Yrk Stck Exchange under the ticker CPRI. The Capri Grup is cmmitted t cmplying with tax laws in a respnsible manner. Our business activities generate a substantial amunt f taxes acrss the glbe. We pay tax in accrdance with all relevant laws and regulatins in the cuntries in which we perate. This includes, amngst ther taxes, crprate incme tax and stamp duty, and we cllect and pay, amngst thers, emplyment taxes, custms and excise duties and value added tax ( VAT ). The taxes we pay and cllect frm a significant part f ur ecnmic cntributin t the cuntries in which we perate, including the United Kingdm, Italy and the United States. In additin, transactins between entities within the Capri Grup are cnducted n an arm s- length basis and in accrdance with the current Organizatin fr Ecnmic and C-peratin Develpment ( OECD ) principles. Our Glbal Tax Strategy The Capri Grup, giving cnsideratin t ur business activities and taking accunt f the prevailing regulatry envirnment, establishes entities in jurisdictins suitable t hld ur verseas investments. Crprate incme tax is payable n the prfits made by the cmpanies in the Capri Grup after allwable business expenses have been deducted, as permitted accrding t the tax laws in the relevant cuntry. We pay the right tax n the prfits we make, and in the cuntries where we create the value that generates thse prfits. Our tax strategy therefre requires that we must: Respect the tax laws applicable in each cuntry, including nt nly the letter f the law but the underlying tax plicy intent; Understand hw and where the different cmpanies in the Capri Grup cntribute t creating value, and ensure that the prices paid n transactins between cmpanies in the Capri Grup prperly reflect where value is created (in ther wrds, each entity perates at arm s-length ); Prepare all tax returns in the frm specified in the lcal cuntry and timely file thse returns; 33 Kingsway Lndn United Kingdm
Prepare and retain the dcumentatin required by lcal tax laws and any ther dcumentatin which will be needed t answer questins (if any) raised by ur tax auditrs; Emply apprpriately qualified and trained tax prfessinals, and where apprpriate engage external advisrs, each with the right levels f tax expertise and understanding f Capri s business; Wrk cllabratively, wherever pssible, with tax authrities; and Endeavur t btain certainty n all tax matters, firstly by ensuring that ur transfer pricing plicies are cnsistently applied acrss the Grup and, secndly, where apprpriate, by entering int Advance Pricing Agreements with the relevant cuntry s tax authrities based n full disclsure f all relevant infrmatin. Managing tax risk The cmmercial needs f the Capri Grup drive the business. As a glbal business, we are subject t taxatin in each cuntry in which we perate. The tax laws and regulatins in these cuntries differ, and are ften cmplex and subject t interpretatin. Recent develpments in the internatinal plitical and tax arena, such as the OECD s Base Ersin Prfit Shifting ( BEPS ) initiative, increase the likelihd f changes t tax systems glbally, creating added uncertainty in the cuntries in which we perate. We cnsider that tax risk is ideally managed by the preventin f unnecessary disputes. We seek t minimize ur tax risk and prevent unnecessary disputes by cmplying with ur Glbal Tax Plicy and by: Adpting technical tax psitins that have a strng basis in the tax law; Prviding clear explanatins f thse psitins t the relevant tax authrities; Cnsulting with utside CPA firms and law firms n such tax psitins; Preparing thrugh dcumentatin, particularly relating t facts, justifying such tax psitins; Establishing and maintaining pen and cnstructive relatinships with tax authrities wherever pssible; and Ensuring accurate and cmplete tax returns thrugh strng cmpliance prcedures. The Tax Risk Framewrk belw sets ut the mitigating actins that all tax prfessinals wrking fr the Capri Grup are expected t take t manage and mnitr key tax risks. There are 7 key risk areas cvered by the tax risk framewrk plicy, rganizatin, peple, gvernance, risk management, cmpliance & dcumentatin and reprting. 33 Kingsway Lndn United Kingdm
Framewrk Risk Mitigating Actin Plicy Organizatin Transactins and behaviur nt in line with ur Glbal Tax Plicy Absence f crrect rganizatinal structure t crrectly implement ur Glbal Tax Strategy Annual review f transactins with auditrs and management t ensure transactins are perfrmed in cmpliance with ur Glbal Tax Plicy Organizatinal structure reviewed quarterly by the Grup Chief Financial Officer ( CFO ) and SVP, Tax and Risk Management and Treasurer SVP Tax ) Peple Insufficient tax skills and training Regular educatinal and training seminars and webcasts fr tax department Gvernance Risk Management Cmpliance & Dcumentatin Reprting Insufficient cntrls in place t mnitr decisin making within the Capri Grup Insufficient cmpliance prcedures in place Failure t meet the statutry tax filing and disclsure bligatins Tax psitins nt accurately reflected in reprting Identify, assess and manage tax risks, and accunt fr them apprpriately Reprt n a quarterly basis t the Capri Disclsure Cmmittee n hw tax risks are managed, mnitred and assessed as well as imprvements (if any) being made Peridically the SVP Tax reviews the prcedures in place t ensure all decisins are taken at the apprpriate level and supprted with dcumentatin that evidences the facts, cnclusins and risks invlved - getting cmfrt frm third parties where required Annual cmpliance calendar and tracker mnitred weekly Mnthly review f tax psitins and quarterly reviews f psitins with management and external auditrs Transactinal risk As nted, the cmmercial needs f the Capri Grup drive the business. This ften results in a number and variety f transactins being undertaken with, and smetimes between, the Capri Grup cmpanies. Our tax prfessinals wrk with the business t prvide clear and relevant advice n the tax cnsequences arising frm any given transactin. In the event mre than ne legitimate ptin exists t achieve the 33 Kingsway Lndn United Kingdm
same result, the mst tax efficient ptin in cmpliance with lcal laws and regulatins is recmmended t the business. In any transactin there may be uncertainty as t hw the relevant tax laws and regulatins will apply - and uncertainty may als arise frm certain judgement calls made by the business particularly in the mre cmplex areas. The mre unusual and less rutine a transactin is, then generally, the greater the tax risks assciated with it are likely t be. One-ff, nn-rutine transactins, such as acquisitins/dispsals f varius Capri Grup businesses r parts f a Capri Grup business, r significant restructuring prjects r rerganizatins, will generally bear greater tax risks than ur rutine everyday business (fr example, selling prducts and services). Capri has well-designed prcedures and systems in place fr the prcessing f rutine transactins. Mrever, ur glbal tax department acts in accrdance with ur Glbal Tax Plicy when engaging in any transactin. Examples f rutine transactins include: preparatin and review f the current and deferred taxes n the financial statements, preparatin and review f crprate incme tax returns, and preparatin and review f financial statement disclsures. Fr nn-rutine, ne-ff transactins, ur glbal tax department is invlved frm the beginning t ensure that the Capri business is prvided with clear and relevant tax advice n the cnsequences arising frm the transactin and understands ur strategy t avid any unnecessary internal r external disputes. Fr any material tax planning r transactin undertaken by the Grup, we utilize the assistance f utside CPA firms and legal cunsel. Additinally, n material tax planning r transactin shuld be entered int withut external advisrs prviding a minimum f mre likely than nt pinin. This means that the Capri Grup will nly enter int a transactin where it is mre than likely that a tax psitin will be sustained if it were t be examined and/r litigated based n the technical merits f the psitin. Plans r transactins that are abve a certain materiality threshld level must als be apprved by Capri s CEO and als by the Bard f Directrs f Capri (r the apprpriate cmmittee theref). Our glbal tax department is invlved thrughut the transactin, cmplying at all times with the Glbal Tax Plicy, t ensure the transactin is crrectly structured under the tax laws f the relevant jurisdictin(s) and any apprpriate cnsents/apprvals are btained in advance frm the lcal tax authrities. We keep accurate recrds and retain all dcumentatin in relatin t the transactin. All material transactins are undertaken with the assistance f external advisrs and are reviewed extensively by ur external auditrs. Operatinal risk Operatinal risk cncerns the underlying risks that stem frm the tax laws, regulatins and decisins arund the wrld t the rutine everyday business peratins f a cmpany r, in ur case, the Capri Grup. Different types f peratins will have different levels f tax risk assciated with them. Given the glbal presence f the Capri Grup and the current tax refrms taking place arund the glbe, Capri seeks t ensure that there is cnsistent cmmunicatin between the varius stakehlders within ur businesses. Fr example, regular calls are scheduled between all Capri key business heads and finance grups and ur tax department t ensure the tax team is abreast f all key Capri initiatives. Our tax team is well psitined and has the right prcesses in place t ensure that the Capri Grup cmplies with the 33 Kingsway Lndn United Kingdm
lcal tax laws and regulatins in the cuntries where we perate, including new laws driven by the OECD's BEPS initiative. Cmpliance risk Capri cmplies with all tax laws, regulatins and disclsure requirements in all cuntries in which we perate. This requires that: Capri, in accrdance with lcal laws, submits all tax returns by their due dates. Where necessary, third party assistance is used t cmplete the necessary filings ; Where a material psitin is taken in a tax return, this psitin is supprted with dcumentatin and legal interpretatin. T this end, it is strngly recmmended that clear dcumentatin f facts and circumstances surrunding a material transactin are recrded at the time f the event; The tax department keeps apprised f, and mnitrs, changes in tax law and practice relevant t the Capri Grup, with the aim f mitigating any adverse impact t a cmpany within the Capri Grup. The department als undertakes regular training in rder t assess any cnsequences f changes in tax law/practice fr the Capri Grup; and The tax department manages its cmpliance affairs t minimize the risk f any adverse publicity. Key Stakehlders Tax Department respnsibilities and rganizatin Capri s tax department frms part f the Capri Grup Finance functin. The Finance department, reprts t the CFO. Our SVP Tax leads a glbal team with specific gegraphic and technical respnsibilities. The tax department is rganized n a centralized basis, which ensures that we have cnsistent tax plicies, strategies and prcesses in place fr the team t fllw, and that we can invest in the team s cntinuing prfessinal develpment. Our tax department must act in cmpliance with the Glbal Tax Plicy. As utlined thrughut this strategy, advice is sught frm external advisrs n material transactins and whenever the necessary expertise is nt available in-huse. CEO/CFO The SVP Tax reprts t the CFO. They meet regularly t discuss current matters and all tax initiatives. Once a quarter, they undertake a thrugh review f the tax functin. All material, nn-rutine tax transactins are apprved first by the CFO and then by the CEO befre being presented t the Bard f Directrs f Capri (r the apprpriate cmmittee theref). The Bard f Directrs f Capri The Bard f Directrs are respnsible fr verseeing management s verall apprach t risk management (including tax risk). The Bard has an active rle, as a whle and als at the cmmittee 33 Kingsway Lndn United Kingdm
level, in verseeing management f ur risks t ensure ur risk management plicies are cnsistent with ur crprate strategy. The Bard regularly reviews the majr strategic, peratinal, financial and legal risks facing the Capri Grup as well as ptential ptins fr mitigating these risks. The Bard has delegated t its cmmittees respnsibilities fr elements f the Cmpany s risk management prgram that relate specifically t matters within the scpe f such cmmittee s duties and respnsibilities. The Audit Cmmittee is respnsible fr the versight f accunting, auditing and financial related risks. As utlined thrughut this strategy, the Capri Grup has rbust internal plicies, prcesses, and training and cmpliance prgrams t ensure we have alignment acrss ur business and meet ur tax bligatins. The Bard f Directrs f Capri (r the apprpriate cmmittee theref) are ultimately respnsible fr setting and apprving the Capri Grup tax strategy, plicies and risk management. Where the Capri Grup is cnsidering entering int a material transactin, final apprval frm the Bard f Directrs (r the apprpriate cmmittee theref) is required befre prceeding. The SVP Tax meets with the Bard f Directrs f Capri (r the apprpriate cmmittee theref) at least annually t prvide updates n the glbal tax landscape at Capri, any pending legislatin that may impact the Capri Grup and any n-ging audits,and t advise the Bard f Directrs f Capri (r the apprpriate cmmittee theref) f any risks that may impact the Capri Grup (e.g. due t changes in law). In determining the level f tax risk the Capri Grup is willing t take in a given year, the Bard f Directrs f Capri (r apprpriate cmmittee theref) cnsiders the reputatinal risk f prpsed and expected transactins within the Capri Grup t avid any negative impact n sharehlder value. The Capri Grup s appetite fr risk is gverned by its mre likely than nt principle. Cnsistency and transparency in applying this level f risk tlerance acrss the Capri Grup is essential. All members f the Capri Grup tax department shuld, at a minimum, meet this level f risk tlerance when making any tax-related decisin, and act practively ensure and cntinually imprve Capri s tax risk decisin-making. Tax Planning We may engage in tax planning t structure ur peratins in a tax efficient manner. Our tax planning is driven by ur business gals and cmmercial bjectives and ensuring that, in meeting these gals and bjectives, the taxes paid reflect the functins perfrmed (i.e. is grunded in cmmercial and ecnmic reality), assets held and risks undertaken by the entities resident in each jurisdictin. Careful deliberatin will be given t the Grup s reputatin, brand, crprate and scial respnsibilities when cnsidering tax initiatives, as well as the applicable legal and fiduciary duties f directrs and emplyees f the Grup and will frm part f the verall decisin-making and risk assessment prcess. The Capri Grup des nt act t meet a business gal r cmmercial bjective if it were t utweigh ur tax cmpliance bligatins. In ther wrds, cmpliance with the law will always prevail. We are cmmitted t paying all the taxes that we we in accrdance with the letter and spirit f all tax laws that apply t ur peratins. As nted abve, t the extent there is mre than ne legitimate ptin t meet a business gal r bjective, ur tax department generally recmmends t prceed with the mst tax efficient ptin. As detailed thrughut ur tax strategy, we pay the apprpriate amunt f tax n the prfits we make, and in the cuntries where we create the value that generates thse prfits. We aim t d this by ensuring that 33 Kingsway Lndn United Kingdm
we reprt ur tax affairs in ways that reflect the ecnmic reality f the transactins we actually undertake in the curse f ur trade. We base ur transfer pricing plicy n the arm s-length principle in line with current OECD guidelines and supprt ur transfer prices with rbust ecnmic analysis and reprts. Our tax returns will be prepared in cmpliance with ur Glbal Tax Plicy and we seek t prvide all infrmatin that users, including HM Revenue & Custms ( HMRC ), might need t prperly appraise ur tax psitin. We annually review each Capri Grup entity s tax return with ur utside accuntants t ensure that it crrectly reflects ur current psitin and is in cmpliance with the law. Relatinships with tax authrities The glbal tax department is cmmitted t wrking in a cllabrative, transparent and practive way with HMRC and ther tax authrities at all times t minimize the risk f challenge and dispute. The Grup avids unnecessary time-cnsuming disputes where pssible. The Grup acknwledges that tax law is nt always clear and ensuring ur actins are crrect ften requires careful judgement. The Grup uses its best endeavrs t make fair judgements and be cmplete and cmpliant n all taxatin matters. The Grup is in regular dialgue with relevant tax authrities (including, in the UK, its UK Custmer Cmpliance Manager at HMRC) t discuss areas f tax and seek advice in areas f dubt. The Grup aims t meet annually with its Custmer Cmpliance Manager, as well as ther tax authrities as apprpriate, t prvide a business update and discuss tax risks and issues. In the event f a tax enquiry, the Grup wrks t prvide accurate, cmplete and timely infrmatin t assist in their investigatins and reslve errrs r incnsistencies immediately. The Grup adpts the same apprach with all tax authrities in the jurisdictins in which it perates. 33 Kingsway Lndn United Kingdm