Tommy Hilfiger Settles US, Hong Kong Tax Probes

by Glen Shapiro, LawAndTax-News.com, New York

15 August 2005

Designer clothing manufacturer, Tommy Hilfiger announced last week that it will pay $18.1 million to settle a probe undertaken by the US Attorney's Office into its tax affairs.

In a statement released on Wednesday, the firm explained that:

"The USAO has concluded that criminal tax charges are not warranted in connection with the buying office commission rate paid by the Company's US subsidiaries for the fiscal years 1990-2004, and will close its investigation. In addition, the USAO has agreed that it will not criminally prosecute Tommy Hilfiger USA, Inc. ("THUSA"), or its parent or affiliates for any offenses relating to underpayment of Hong Kong taxes as a result of activities attributed to Tommy Hilfiger (Eastern Hemisphere) Limited ("THEH")."

"The non-prosecution agreement with the USAO is subject to certain understandings, including that THUSA will file amended US federal income tax returns for the fiscal years ending March 31, 2001 through 2004 reflecting a reduced buying office commission rate for those four years, adopt and implement the recommendations of the Special Committee of the Company's Board of Directors, adopt and implement an effective ethics and compliance program, and provide information to the Hong Kong Inland Revenue Department ("IRD") for it to evaluate whether THEH or its Hong Kong subsidiary owe any Hong Kong taxes to the IRD."

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