I’m a man, I’m not just a fashion designer. – Stefano Gabbana
Now, Gabbana can add “tax evader” to his resume.
Both Stefano Gabbana and his partner, Domenico Dolce, together known as the fashion duo Dolce & Gabbana, were fined in connection with charges of tax evasion this week by a Milan tax court. Prosecutors had claimed that the two structured the finances at their famous fashion house in order to dodge taxes in Italy.
Whispers about potential wrongdoing have been dogging the fashion designers for years. Speculation about their tax dealings began in 2004 when Dolce & Gabbana sold their business to a Luxembourg-based holding company, Gado Srl, that they control. The two reportedly undervalued the company for purposes of the sale in order to avoid paying tax on the transaction.
The official investigation by the Italian tax authority into their operations started shortly after the sale, in 2007, and focused on the years 2004-2006. Initially, the two believed that the matter had been resolved in their favor but Italy’s highest court sent the matter back to trial. Dolce and Gabbana found their business back in court in late 2012.
This week, a Milan tax court ruled in favor of Italy’s tax authority, Agenzia delle Entrate, finding a “conduct of abuse with the only goal of obtaining a fiscal advantage.” The two were ordered to pay 343.3 million euros ($439.70 million U.S.) as restitution. In addition to the fines, both Dolce and Gabbana face prison sentences of up to five years in a separate criminal trial related to the same business.
Dolce & Gabbana founded their luxury brand 28 years ago in Milan. The two presented their first significant collection, a lingerie-inspired women’s fashion line, to the fashion world in 1985. The line attracted the interest of many fashionistas and eventually, their roster of devotees grew to include such luminaries as Madonna, Scarlett Johansson, and Naomi Campbell. The combination of luxe and star power boosted the duo’s global appeal and catapulted Domenico Dolce to the ranks of the Forbes Billionaires (#11 in Italy, #736 overall).
Now, however, the brand and the duo’s wealth (and perhaps, personal freedom) is in jeopardy. There is still no official word on whether an appeal is planned thought it would be shocking if one were not contemplated since such a move would give the designers a stay on paying the fine. In the interim, supporters have urged Dolce & Gabbana to leave Italy altogether to avoid paying the fine or face further punishment.
The two join an increasing number of wealthy Italians facing scrutiny over their financial transactions, including Roberto Cavalli (eventually cleared), Valentino (fined), and former Italian Prime Minister Silvio Berlusconi (sentenced). Italy is thought to forfeit an estimated $150 billion a year in unpaid taxes, the third-highest rate in Western Europe.
