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Tommy Hilfiger announces resolution of USAO probe

11 Aug '05

6 min read

In October 2004, the Board of Directors of the Company formed a Special Committee of independent Directors to conduct an independent investigation into matters arising out of the governmental investigation. The Special Committee retained Debevoise & Plimpton LLP as legal counsel, with a team headed by Mary Jo White, former U.S. Attorney for the Southern District of New York.

The Special Committee reported on its investigation to the Board in March 2005 and to the USAO in April 2005. As previously disclosed, the Special Committee found that the Company had a good faith basis for adopting the buying office commission rate paid by the Company's subsidiaries to THEH.

Also as previously disclosed, the Special Committee did identify certain questions about Hong Kong tax matters and supported the Company's determination to engage the IRD in discussions regarding whether THEH was subject to profits tax in Hong Kong, and the Special Committee made recommendations to the Company to enhance procedures for tax matters, including transfer pricing, and to review its buying office structure. The Company's management has adopted all of the Special Committee's recommendations.

As previously disclosed, the Company initiated discussions in May 2005 with the IRD with respect to the potential Hong Kong profits tax liability of THEH. In the course of these discussions, the Company made a settlement offer to the IRD to resolve this issue, which offer had been reflected in the expected tax provisions that the Company previously announced. The IRD has not accepted the Company's settlement offer, and discussions are ongoing. Accordingly, the Company cannot predict the timing or outcome of its settlement discussions with the IRD, and there can be no assurance that the resolution of these discussions will not have a material effect on the Company.

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