FASHION LAW: DOLCE & GABBANA GUILTY OF TAX EVASION
Twenty-months in a suspended prison is not an alternative for fashion designers, Domenico Dolce and Stefano Gabbana. The design duo maintained quite the glamorous lifestyle from nestling next to succeeding film stars to having their pick at the top models for runways since the ‘80s; this global brand is far from its glory days. Dolce & Gabbana, the luxury Italian brand is under investigation for tax evasion. The twosome was not about to let their prestigious timeline get stamped with a jail sentence in between; impartial to what they may plea, a heavy fine was placed upon the mega fashion house this past June under the allegation of hiding billions from Italian tax authorities.
The official survey started back in 2007 when authorities tried to crack down on as many high-profile cases as they could during the brink of the financial crisis. The pair was initially investigated for fraudulent charges back in 2007, but the case was dismissed in April 2011. The investigation focused on the years 2004-2006 allowing the Italian Supreme Court to look into the details of the case. There it was discovered that the brand was being sold to Luxembourg-based holding company Gado Slr for €360 million, or $508 million USD, a mere fraction of their actual commerce value.
Dolce & Gabbana Flagship Store on 5th Avenue, NY
The prosecutor, Laura Pedio, demanded a two year jail sentence along with paying a fine of half-million euros to Italy’s tax agency. Shortly after the trial, Judge Antonella Brambilla acquitted the pair of filing inaccurate tax returns. As the court proceedings began, the pair stood by their brand and prayed that the tax evasion allegations would fade away. Judge Brambilla ruled that the pair sold their brand to Gado in 2004 to steer clear of declaring taxes on royalties on approximately €1 billion. Pedio claimed that the setup enabled the two companies to avoid paying their share of taxes, christening it a ‘sophisticated tax fraud’.
Despite the vindication, the overall impact will weigh heavily on the fashion house for a possible tax bill may shut down the Dolce & Gabbana Company. Even with the pair’s constant plea of innocence in this whole matter, the trial ensued with high demands; however, all final cuts of the tax evasion are currently in limbo.
In short, the label has seen better days; it leans on the possibility of closure. The fines itself can ruin the label. “We will close,” said Dolce. “What do you want us to do? We will close. We will not be able to deal with it. [It’s] impossible.“
“If we deserved the sentence, there would be nothing to say,” added Gabbana. “But we do not deserve it, and so unfortunately we would have to close.“
The legitimacy of this threat is tough to measure. The company is privately owned, so there’s no way to tell how financially strapped it is. Will you miss Dolce & Gabbana?
NEWS UPDATE (10/24/14): Dolce & Gabbana found innocent of tax evasion case by Italy’s highest court. — via WWD