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 original criminal charges followed a stiff 343.3 million euro ($439.70 million U.S.) 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 taxing authorities targeted Miuccia Prada and her husband, Prada chief executive Patrizio Bertelli, on charges of tax evasion. Italy is thought to forfeit an estimated $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. 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.
Shortly after the sale, Italian tax authorities started asking questions about the pair’s finances. It would be the start of a lengthy investigation into the luxury brand which started 28 years ago in Milan. Today, the pair dresses models, actresses, and socialites: their Facebook page currently boasts such stars as Kylie Minogue, Jennifer Lawrence, Lucy Liu, and this month’s Vogue cover girl, Kate Upton.
The combination of high-end fashion and star power catapulted Dolce and Gabbana to the ranks of the Forbes Billionaires. This year, the pair tied on the list at #1,025 (down from #736 in 2013) after dropping their lower-end D&G brand.
The pair’s value could plummet even lower. The darlings of the Italian design world had threatened to shutter operations if their appeal was not successful, with Domenico Dolce declaring at the time:
We will close. What do you want us to do? We will close. We will not be able to deal with it. (It’s) Impossible.
For now, Dolce and Gabbana are said to be “shocked” at the ruling despite the fact that the original appeal was not expected to be successful.
Another appeal is expected.
