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Judge Details Dolce, Gabbana Ruling

The designers were aware that the company they sold their brands to in 2004 was a fictitious entity, according to Judge Antonella Brambilla.

MILAN — Domenico Dolce and Stefano Gabbana were aware that the company they sold their brands to in 2004 was a fictitious entity, according to Judge Antonella Brambilla.

As per the reasonings behind the guilty verdict handed down in June, 62 pages of which were deposited in court this week, Gado Srl was a firm only apparently based in Luxembourg and one that had “no administrative management or accounting,” which raised “legitimate doubts” about the tax rate that should be applied.

In detailing her reasons for finding Dolce and Gabbana guilty, Brambilla wrote that she believes the designers were “certainly” aware of the fact, as they had sold their brands to Gado and “evidently knew its structure and purposes, as it is certainly not believable that the designers had given up control of the actual ownership of the brands.”

The judge said that the only purpose in setting up a company such as Gado was “to transfer earnings derived by royalties in Luxembourg” and that they were effectively the “beneficiaries.”

In a statement, the designers’ lawyers, Massimo Dinoia, Armando Simbari and Fortunato Taglioretti said Brambilla’s motivations “reveal how the trial results have been misunderstood or forgotten by the court.” The lawyers reiterated that they will appeal and that they are “sure” the sentence will be overturned. Regarding the alleged responsibility of the two designers, the lawyers said Dolce and Gabbana “never had any role nor were they ever engaged in the restructuring of the group, even less so in the creating and following the management of Gado. They are two designers who dedicated their activities exclusively to research, creativity and style,” said the lawyers.

In June, Dolce and Gabbana, as well as four other defendants, were found guilty in the designers’ long-running tax evasion case. Brambilla sentenced the designers and accountant Luciano Patelli to one year and eight months in jail, plus legal expenses. Dolce’s brother Alfonso, general director Cristiana Ruella and finance director Giuseppe Minoni were sentenced to one year and four months in jail plus legal expenses.

There is little chance the designers and the other defendants will serve any jail time because the sentences are below the two-year minimum generally required in Italy to do so and because there are the conditions for a “conditional suspension” of the sentence.

The defendants were also charged with paying the Revenue Agency a provisional fine of 500,000 euros, or $667,325 at current exchange. The plaintiff solicitor Gabriella Valadia at the end of May asked for a provisional fine of 10 million euros, or $13.3 million, citing damages to the image of the Revenue Service. Valadia at the time claimed that tax evasion “shows a system that is not credible and efficacious, it hurts the credibility of the Italian fiscal system, aggravated by the fact that the individuals at the center of the trial are so famous.”

The court’s fine is separate from one imposed on the designers by the Revenue Agency of more than 400 million euros, or $533.8 million at current exchange, at the end of March.

The designers may still avoid the fine, if they decide to appeal and wait for a third-degree sentence.

The designers were acquitted on the second count they were originally charged with, which regarded the valuation of the company and the tax rate paid.

Following investigations that began in 2008, initiated by the Guardia di Finanza, an Italian police force under the authority of the national minister of economy and finance, both designers were charged with alleged tax evasion related to the 2004 sale of the Dolce & Gabbana and D&G brands to the designers’ Luxembourg-based holding company, Gado Srl. The Italian tax police reportedly consider Gado essentially a legal entity used to avoid higher corporate taxes in Italy.