A judge here ruled Friday that designers Domenico Dolce and Stefano Gabbana will not stand trial for alleged tax evasion. After four-and-a-half hours behind closed doors evaluating evidence by Milan-based prosecutor Laura Pedio and statements from the defendants, judge Simone Luerti on Friday dismissed the charges and deemed there was no foundation for a trial. The designers’ lawyer, Massimo Dinoia, was visibly pleased and fielded questions by a handful of journalists assembled at the Milan courthouse, but declined comment. The designers also declined comment.
“There are no elements of penal relevance,” said Giuseppe Bana, lawyer for the designers’ accountant, Luciano Patelli, following the preliminary court hearing. “I am very pleased with this decision and I’m not in the least surprised. The judge prevented this from going too far, it’s an investigation that should never have been initiated in the first place.”
Luerti had the option to dismiss the case if the evidence didn’t justify moving forward.
The judge’s decision cleared Dolce, Gabbana, Patelli, and four others involved: Dolce’s brother and board member Alfonso Dolce, managing director and board member Cristiana Ruella, and company managers Giuseppe Minoni and Antoine Noella.
None of the defendants attended the hearing, which was not open to the public or the media.
A source said Dinoia, who has been representing the designers for the past three years, wrote a file of more than 300 pages refuting the accusations. Lawyer Alberto Simbari, who works in Dinoia’s office, told WWD in February “the challenges for fraud and fiscal irregularities do not exist in fact and in law. [The designers have acted] in a legitimate and transparent manner and we reject any accusation.”
The dapper Dinoia, who was wearing a Gianfranco Ferré suit on Friday, has been a criminal lawyer for 30 years and has argued countless high-profile cases. He was recently on the front pages of newspapers throughout Italy as the lawyer representing the young woman nicknamed “Ruby Heartbreaker,” who implicated Prime Minister Silvio Berlusconi in a sex scandal. Dinoia decided against defending the woman in February.
A legal source said the Milan prosecutor Pedio was “extremely surprised” by the outcome and may decide to appeal, once she reads the judge’s reasons for dismissing the case. Luerti will file the papers in 30 days. The acquittal could also be supported by the government’s decriminalization of false accounting, said a source.
Another legal source close to the matter said, “It’s not as if nothing happened, issues at an administrative level remain, but the limits that would make this a penal offence were not passed.”
According to the accusations, each designer allegedly evaded taxes totaling 416 million euros, or $589 million at current exchange. The designers issued a statement in May 2009 denying the allegations, which relate 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 are understood to consider Gado essentially a legal entity, allegedly used to avoid higher corporate taxes in Italy. Noella, a source said Friday, was considered by the prosecutor only a figurehead manager.
The designers said the accusations were “based on a completely abstract calculation,” which enables the tax authorities to replace the sum actually paid with a hypothetical market value. Since their May 2009 statement, the designers have consistently declined to comment on the issue.
There also was a separate criminal probe into supposed tax irregularities at the Dolce & Gabbana Group, which was part of the case dismissed Friday. Those accusations address unpaid taxes of 200 million euros, or $283 million. The designers’ alleged evasion of national income tax could have carried up to a three-year prison sentence or a fine up to 1 million euros, or $1.3 million at current exchange, according to a legal source.
The news that Dolce and Gabbana had been indicted and could have faced a court trial emerged in November, as Pedio confirmed that Dolce and Gabbana had been indicted on tax evasion charges. The investigations were initiated by the Guardia di Finanza, an Italian police force under the authority of the national minister of economy and finance.
While the judge’s decision Friday to throw out the case upset the Milan prosecutor, one leading industry figure, Armando Branchini, deputy chairman of Milan consultancy InterCorporate, predicted the outcome months ago. “Italy’s tax agency wants to win the favor of public opinion and show it keeps busy. It often doesn’t get to those that consistently defraud the fiscal system because they succeed in becoming totally invisible, so it focuses on those that are visible, that do pay their taxes,” said Branchini. “So many luxury goods houses are visited by the Guardia di Finanza for months on end, which slows down their daily activities, and already Italian bureaucracy doesn’t help.”
Another source said he believed Friday’s outcome was “reasonable.” Should the authorities decide to continue to press the case, “the designers may still have to pay a fine, or they may have to turn to the province tax commission” to avoid any fine.
This was only the latest go-round between fashion designers and crusading Italian tax authorities — who seem to be better at throwing allegations than at actually proving them. Over the years, numerous luxury and designer brands have been accused of evading tax payments through dummy headquarters or residency in countries where the fiscal grip is less tight than in Italy — and in most cases the designers and brands have successfully refuted the allegations. The authorities also have gone after high-profile figures in sports, the arts and industries across the board.
In July, an inquiry by the Guardia di Finanza resulted in allegations that Belgian designer Dirk Bikkembergs evaded tax payments of 111 million euros, or $151.7 million. Bikkembergs rebutted the allegations, calling them “shameful towards a foreign investor.” The investigation is focusing on two companies: 22 Srl, which produces clothing in Fossombrone, Italy, for Bikkembergs’ brand, and Luxembourg-based IFF Sarl, the distributor of the brand’s products.
The authorities alleged the Bikkembergs organization is in Italy and that revenues were redirected to Luxembourg instead of being declared and taxed in Italy. The designer’s lawyer, Francesco Giuliani, said at the time, “Our position is that the authorities have not taken into account the real situation: IFF does not have a structured organization in Italy, and they [the tax authorities] did not correctly calculate the turnover of IFF, as they did not take into account the company’s costs.”
Two years ago, the Lazio, Italy, regional tax office hit Valentino Garavani and his longtime business partner, Giancarlo Giammetti, with a 33 million euro, or $46.7 million at current exchange, fine for allegedly evading tax payments. The fine was levied in relation to possible undeclared earnings. According to the tax office, the couturier and Giammetti avoided declaring their incomes in Italy by moving their residence outside the country, while effectively keeping their business operations here.
However, their lawyer, Marino Bastianini, stated that both men have been residents in the U.K. for almost a decade and have “in that period always declared and been subject to tax in the United Kingdom, which included taxation of the consultancy income received from the Valentino company. The dispute with the Italian authorities is in essence not about tax evasion but related to the interpretation of facts and circumstances concerning tax residency. The issue has been [the] subject of a previous investigation in Italy and the U.K. and on both occasions the U.K. residency has been considered in full compliance with the Italian and U.K. tax regime, thus acknowledging the legitimacy of their U.K. residency.”
Bastianini said the issue “disregarded some elements which were previously taken into consideration.”
Salvatore Ferragamo SpA also was accused of tax fraud, reportedly to the tune of more than 20 million euros, or $31 million, in unpaid monies related to the group’s Netherlands-based holding company. However, the fashion company was cleared of the charges on appeal three years ago. Ferragamo proved on appeal that its holding company, Ferragamo International BV, was a fully consolidated part of the group and not, as fiscal authorities had alleged, little more than legal entity, which the fashion house used to avoid paying higher corporate taxes in Italy.
Three years ago, Roberto Cavalli was cleared by Italy’s Supreme Court of Cassation of a tax evasion indictment, after the designer was accused in 2002 of evading fiscal responsibilities by booking costs to remodel his villa on the hills surrounding Florence as company expenses for the fiscal years 1996 through 2000. Cristiana Cavalli, daughter of the designer and president of the company, told WWD at the time that they had proved “there were never fictitious activities or expenses.”
Gianfranco Ferré, Santo Versace, Mariuccia Mandelli of Krizia and their business associates were indicted in July 1995 on charges of corruption and bribing tax police in return for swift, trouble-free audits. While they were originally found guilty, a higher court overturned the verdicts and found they were victims of extortion.
At that time, Giorgio Armani, Gerolamo Etro and Krizia chairman Aldo Pinto were indicted on similar charges, but pleaded guilty in May 1996 before the trial began. They, too, said they were victims of extortion, but took plea bargains to end their cases as soon as possible to save themselves and their businesses from the impact of a long judicial process.
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