Italian Designers Cleared of Tax Evasion Charges, Setback for Italian Prosecutors

Fashion designers Domenico Dolce and Stefano Gabbana are breathing sighs of relief after being cleared by Italy’s highest court of tax evasion charges Friday, bringing an end to one of the country’s highest profile tax cases in recent years.

The designers have been in a constant battle since June 2013 when they were convicted on charges of having failed to file tax declarations for a Luxembourg-based company that, according to prosecutors, was structured in order to evade taxes that the company owed in Italy.

The pair came under fire in 2004 after conducting a sale by the company of its main brands to a Luxembourg company called Gado. Prosecutors alleged the two failed to pay about $50.7 million for the years 2004 and 2005 as a result of the move. Charges were filed in 2007.

Prosecutors asked for a two-year jail term for the designers, claiming their operation was a “sophisticated tax fraud” scheme. They were instead sentenced to one year and eight months in prison.

The case turned around after another prosecutor argued during an appeal last March that the Luxembourg company was indeed a real operating company and not just a shell created to avoid paying tax.

The designers denied any wrongdoing from the beginning. The company didn’t have an immediate comment, however, the pair’s attorney, Massimo Dinoia, said Friday that, “We have overwhelmingly won on every point.”

The court’s decision Friday comes as a major defeat for prosecutors and Italy’s tax authorities, who have targeted the use of Luxembourg holding companies by Italian companies to escape taxes.

Source: Ball, Deborah, “Italian Court Clears Dolce and Gabbana of Tax Evasion Charges,” The Wall Street Journal, October 24th, 2014