MILAN — Guilty.

This story first appeared in the June 20, 2013 issue of WWD. Subscribe Today.

That was the verdict handed down to Domenico Dolce and Stefano Gabbana, as well as four other defendants, here Wednesday afternoon in the designers’ long-running tax evasion case. Judge Antonella 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.

The defendants were also charged with paying the Revenue Agency a provisional fine of 500,000 euros, or $668,650 at current exchange. The plaintiff solicitor Gabriella Valadia at the end of May asked for a provisional fine of 10 million euros, or $13 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 by the Revenue Agency of more than 400 million euros, or $535 million at current exchange, at the end of March.

The only defendant totally acquitted Wednesday was Noella Antoine, an employee of Alter Domus, an agency that provides services in Luxembourg, as there was “no case,” said the judge. In his closing speech at the end of May, prosecutor Gaetano Ruta had requested Antoine be acquitted.

RELATED STORY: Dolce, Gabbana Lawyer Asks for Full Acquittal >>

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.

Brambilla quickly delivered the verdict in a courtroom that was teeming with reporters and TV crews for the first time since the first hearing on Dec. 3. The reasonings behind her verdict will be deposited with the court in 90 days.

The designers never attended any of the hearings in the trial and weren’t present at the reading of the verdict, nor were Ruella, Alfonso Dolce and Minoni, who had been fixtures at each hearing.

After Brambilla exited the courtroom, one of the defendants’ lawyers, Massimo Dinoia, surrounded by the press, said he was “surprised” by the outcome of this “most paradoxical trial.” Dinoia stressed he will appeal the decision, adding he was confident “in a reversal of the sentence.” The defendants have always denied all the charges.

Following the verdict, Patelli’s lawyer, Fabio Cagnola, told WWD that the appeal cannot take place before about 140 days, also taking into account the court’s summer break. Three judges will preside over the appeal, which will involve reading the papers already deposited in the case and not a completely new trial with testimony. There is then the potential of one final appeal by either the state or the defendants to Italy’s equivalent of the Supreme Court, the Corte di Cassazione.

“Whatever happens, this verdict is not effective until after it has passed through the Corte di Cassazione,” explained Cagnola. Asked if the defendants will be granted probation, the lawyer said Italy’s legislation allows in this case for a “conditional suspension,” which means that “if no other crime is committed in five years, the original one is annulled. That said, a criminal record remains.”

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.

In April 2011, deeming there was no foundation for a trial, judge Simone Luerti dismissed the charges against Dolce and Gabbana, Alfonso Dolce and Ruella. Milan-based prosecutor Pedio appealed to the Supreme Court, which ruled Wednesday after about six months.

On Wednesday evening, the designers’ lawyers — Dinoia, Armando Simbari and Fortunato Taglioretti — issued a statement expressing “great satisfaction” that, for the second time, a judge had deemed there was no case in relation to the sale of the brands at a lower value than that estimated by the tax police. They were even more pleased at that decision since the unfaithful tax declaration accusations expired at the end of April after seven years and six months — and as such Brambilla’s acquittal was a “manifest proof of their innocence,” they said.

The lawyers reiterated that the overall charges were “paradoxical” as the designers were accused of evading the payment of taxes “for an amount more than double” what they were paid for the brand. The verdict, said the statement, will “ease the mind of all citizens, who will not be asked to pay taxes for a value greater than their earnings.”

According to the lawyers, the fact that the designers were found innocent of the one charge is at the same time “clamorous and dramatic” because, they said, the Revenue Agency is proceeding to claim more than 400 million euros, or $535 million at current exchange, in unpaid tax based on what the agency thinks the designers should have made from the sale of the brand to Gado. The lawyers described the revenue agency’s demand as “stratospheric and unreal.” As the designers do not own such a sum, as they never received it for their brands, said the lawyers, “most likely” the agency will “attack the main asset in their patrimony, their participation in the Dolce & Gabbana company. We fear even to think what the social and economic repercussion of this will be.”

The designers can appeal the tax commission’s ruling.

Earlier Wednesday morning, prosecutor Laura Pedio, responding to the defendants’ lawyers closing remarks last week, described the fiscal fraud as “sophisticated and well constructed, so complex as to be insidious.” Pedio asked the judge not to dismiss the issues at trial as merely fiscal ones. Such “granitic proof cannot be ignored in a penal trial,” which should not only deal with “fake bills from the car repair shop, but with increasingly more complex fiscal engineering,” she said.

An acquittal would tread on the constitutional principles of the obligation to tax contribution, she said. “Enough with the privileges, where the firms in Italy book the costs, and profits are gathered abroad.” According to the prosecutor, everyone was aware of the risks, noting that the designers “knew exactly what was happening, actively participating in the operations and adding their signatures to the contracts.” She compared herself to the designers and said: “It’s as if one day my salary suddenly comes from Luxembourg and stops coming from Milan. How can I not notice?”

In late May, the prosecutors requested that Dolce, Gabbana and Ruella be sentenced to two-and-a-half years in prison for tax evasion. Ruta and Pedio alleged that the only purpose in selling the Dolce & Gabbana brands to Luxembourg-based Gado Srl in 2004 was to avoid paying taxes.

Prosecutors also requested Alfonso Dolce and Minoni be sentenced to two years in prison, that accountant Patelli be sentenced to three years in prison as the “main orchestrator” of the evasion scheme, while defendant Antoine Noella be absolved for lack of evidence.

Dinoia on June 12 had asked Brambilla for a full acquittal of his clients and to dismiss all the charges because there was no case to proceed.

The decision Wednesday was the latest chapter in the long and sometimes strange relationship between the fashion world and the Italian tax authorities, both at the federal and local level, which has ensnared everyone from Giorgio Armani to Valentino to Gianfranco Ferré and Gianni Versace. Many of these designers were found not guilty, while others settled by paying fines. Dolce and Gabbana are the first Italian designers to actually be tried in court for tax evasion.

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