I’ve been following this case through the highs and lows of it all, and it seems that finally, there is a conclusion. The design duo behind one of the most revered Italian fashion houses, Domenico Dolce and Stefano Gabbana, have been found not guilty by Italy’s highest court. This legal saga has been going on for 4 years with a lower court and an appeals court both finding the designers guilty of tax evasion and were sentenced to 18 months of jail time.
The design house was accused of committing tax evasion by selling their brand to the Luxembourg-based holding company, Gado Srl, in an effort to avoid higher corporate taxes in Italy, where the brand was originally based. The duo appealed the lower courts’ decision to Italy’s highest court with the their defense team arguing to the court that the two should not be held liable for any wrongdoing because they are of creative minds and don’t deal “with bills and schemes to cut their tax rate.”
Yesterday, a five-member jury deliberated the case and arguments presented and ruled that there were no grounds for a case, thus overturning the lower courts’ decisions.
And so, another legal saga concerning the tax practices of Italian brands comes to end. And, while the outcome is favorable for Dolce and Gabbana, other Italian brands would do well to take note and make sure their tax practices are above board, or else they may also be embroiled in a legal battle for years that could affect the reputation of the brand.
Fashion designer, Miuccia Prada, and her husband, Patrizio Bertelli, are under investigation by the Italian Tax Authority for tax evasion pertaining to Prada’s namesake brand, Prada SpA and tax paperwork that the company filed relating to foreign owned companies.
Prada SpA released a statement explaining that both Prada and Bertelli voluntary disclosed to the Italian Tax Authorities in December 2013 regarding certain issues about the company, and that these disclosures led to an agreement between the husband and wife and the Italian Tax Authority.
“Prada store in Singapore” by 22Kartika
In January of this year, Women’s Wear Daily reported that the pair were under investigation for unfaithful earnings declaration, and that the husband and wife paid $643.9 million to the tax office.
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.”