By  on March 1, 2012

MILAN — Stefano Gabbana and Domenico Dolce’s tax case could make legal history in Italy.

The Italian Supreme Court earlier this week laid out the reasons why it decided to reopen the case, alleging the designers and several business associates evaded taxes. The designers originally were absolved of the claims by a lower court in April.

In a statement that could set legal precedent in Italy, the Supreme Court said tax avoidance, or tax mitigation, on an earnings declaration is a criminal offense under the law. This is a major ruling since tax avoidance — which allows taxpayers to take advantage of certain benefits, such as creating a separate legal entity to which one’s property is donated, for example — previously was not considered a crime.

In its verdict, the Supreme Court said, “If there is a criminal intent while compiling one’s earnings declaration and a consequent unfaithful declaration, the elusive behavior cannot be considered tout court penally irrelevant.”

The designers have always denied any wrongdoing and in an interview with WWD in December, they expressed clear consciences and a lack of bitterness, albeit disappointment, over their battle with Italian authorities concerning the alleged tax evasion.

The Supreme Court’s decision means there will be a new preliminary hearing in front of a new judge. In April, deeming there was no foundation for a trial, Judge Simone Luerti dismissed the charges against Dolce and Gabbana and five other defendants, including Dolce’s brother and board member, Alfonso Dolce, and managing director and board member Cristiana Ruella. However, Milan-based prosecutor Laura Pedio appealed to the Supreme Court, which issued its ruling after about six months.

Both designers were charged with alleged tax evasion to the tune of 416 million euros, or $562 million at current exchange, 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.

A separate criminal probe into supposed tax irregularities at the Dolce & Gabbana Group was part of the case dismissed in April. Those accusations address unpaid taxes of 200 million euros, or $270 million. Conviction of national income tax evasion can carry up to a three-year prison sentence, or a fine of up to 1 million euros, or $1.3 million at current exchange.

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