Did Dolce & Gabbana Forget To Pay $1 Billion In Taxes?

And now, this morning’s billion dollar question: Have designers Domenico Dolce and Stefano Gabbana really not paid several hundred million euros worth of taxes, or is Guardia di Finanza (Italy’s answer to the IRS) just getting a little slap happy?

Sources confirmed to WWD that the designers were recently indicted in a tax evasion case that’s been under investigation since 2008. The indictment alleges that the designers and the house they built fudged the real value of their company when they sold it to their Luxembourg-based holding firm Gado Srl. in 2004. If they’re found guilty, the two could be personally liable to over $1 billion in back taxes and fines.

Of course, the designers vehemently deny the charge — and they have been since they were made aware of the investigation. In May 2009 they issued a statement saying that they’ve paid all the taxes they owe, and that the tax police aren’t getting a single additional lira of their hard-earned money. Per WWD:

“It’s a paradox! Since when does one have to pay taxes on money one never actually collected,” the designers said in a personal statement. “It’s an absurd demand based on a completely abstract calculation. This higher taxable sum…is a virtual figure we have never received, the result of a theoretical accounting exercise.”

According to Dolce and Gabbana, the police claims are based on “the mistaken interpretation” of a regulation which enables the tax authorities to replace the sum actually paid with a hypothetical market value.

“This claim, far from offering an opinion of the actual facts, describes only the interpretation of a guideline,” the statement read. “[The] said allegation constitutes only an invitation to the [tax office] to examine the legal basis of that thesis, and will translate in a payment request for Mr. Dolce and Mr. Gabbana only in case [the] said thesis is proven. If this happened, [the designers] would be facing a blatant violation of the principle of contributory capacity…as the request would then be for taxation of unearned income.”

Brilliant legal and financial minds we have not, but it kinda sounds to us like the Italian tax collectors are just getting a little greedy — and this isn’t the first time they’ve charged designers with tax evasion that later turned out to be simple legal misunderstandings. In 2002, Roberto Cavalli was charged with using his corporate expense account to remodel his villa in Florence, so as to avoid paying personal taxes on the project. He was fully acquitted by the Italian Supreme Court in 2008. Valentino Garavani and his business partner Giancarlo Giametti were charged with not paying income taxes in Italy, despite their residency in the UK. Lawyers eventually reasoned that the men had been paying proper taxes to Her Majesty the Queen, and the two were off the hook for the $45 million sought by the Italian tax office.

Whether Dolce and Gabbana’s case will go to trial has yet to be determined — a judge will have to evaluate the evidence before determining if it merits a full court press. If it does go to court, the designers will have the option of waiting the case out or simply paying a fine to make it go away quickly. But as angry as they seem, and as serious as the charges are, we’re guessing they won’t take this laying down.

Dolce, Gabbana Said Indicted in Tax Case [WWD, Sub. Req'd]

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