Prada next in line with D&G on Tax Evasion?

In the end, popular opinion wasn’t enough to save Domenico Dolce and Stefano Gabbana, the designers behind the highly lucrative fashion label Dolce & Gabbana. Despite pleas on social media and protests from fans, an Italian appeals court has upheld the decision reached last year in a lower court which found the pair guilty of tax evasion. 

The criminal charges followed a stiff €343.3 million fine ordered payable as restitution last spring. At trial, a Milan tax court had ruled in favor of Italy’s tax authority, Agenzia delle Entrate, finding that Dolce and Gabbana had engaged in a “conduct of abuse with the only goal of obtaining a fiscal advantage.”

The pair was next in a line of Italian designers facing scrutiny over their financial transactions, including Roberto Cavalli (eventually cleared) and Valentino (fined). Earlier this year, Prada joined the trend when tax authorities targeted Miuccia Prada and her husband, Prada chief executive Patrizio Bertelli, on charges of tax evasion. Italy is thought to forfeit an estimated US$150 billion a year in unpaid taxes, the third highest rate in Western Europe.

Speculation about Dolce and Gabbana’s tax maneuvering stretches back nearly ten years to 2004. At that time, Dolce & Gabbana sold their business to a Luxembourg-based holding company called Gado Srl. Dolce and Gabbana control Gado and not coincidentally, Luxembourg is a popular spot for holding companies due to its banking industry and tax friendly status. Italian tax authorities suspected that the duo undervalued the company for purposes of the sale in order to avoid paying tax on the transaction.

Both designers are facing 18 months in jail but there may still be legal maneuvering to come as the next and final stop is an appeal to Italy’s Supreme Court.