The Armani Group has been embroiled in a tax audit with the Italian government stemming from the operations of three foreign companies controlled by Armani between the years of 2002-2009. Even though the companies were based in foreign countries, the Italian tax authority claimed that the group should have paid the taxes to Italy. The group has settled this dispute with the authorities and have agreed to pay about $373 million.
Armani is one of many Italian brands that have been targeted for tax audits by Italian authorities, who have begun to crack down on the brands. Bulgari, Prada, Safilo, Marzotto and Luxottica all have settled with the authorities over tax disputes, rather than go to trial.
WWD quotes an Italian legal source as saying, “Twenty years ago, it was extremely common for Italian fashion groups to create subsidiaries abroad for a more favorable tax rate,” and that the Italian law allows these practices only if the companies can demonstrate that the subsidiaries are not only operative, but also feature an autonomous strategic management and an effective board of directors. He continued to state that, “In the last five years, the tax agency has tightened the belt, and fashion companies are reorganizing to avoid any agency’s audit, which can seriously damage their image.”
Dolce and Gabbana is one of the brands who is currently involved in a tax trial, where the duo design team,Domenico Dolce and Stefano Gabbana, are charged with tax evasion relating to the sale of their namesake brands, Dolce & Gabbana and D&G, to their holding company, Gado Srl, based in Luxembourg. The Italian authorities claim that Gado is a legal entity used to avoid corporate taxes in Italy, and the designers were convicted. The designers have appealed and are claiming that they were not responsible for establishing Gado or involved in the administration and operations of the company, and as such that the duo are innocent. The trial has been ongoing with final verdict to be rendered on April 30.
No matter the outcome, however, it can be argued that the Dolce Gabbana trial has had a negative impact on the brand. It’s never a good public relations opportunity when a brand is embroiled in legal matters, especially when the operations of the company are being questioned. Hence, why many Italian brands, like Armani Group, chose to settle the dispute to avoid any more publicity that could portray its brand in a negative light. Sometimes, a brand has to make a legal decision based on the overall impact on its brand rather than the facts of the case.
- “Dolce and Gabbana Tax Trial Presses On“, Women’s Wear Daily
- “Armani Group Settles With Italian Tax Authority“, Women’s Wear Daily
- Armani: Jan Schroeder
- Dolce & Gabbana: WiNG