Legal troubles continued to dog the Italian fashion industry in 2014 — ending for some and beginning for others.
The year brought a dramatic end to the closely watched tax trial of Domenico Dolce and Stefano Gabbana with an acquittal and a reversal of verdict at Italy’s highest court in October. Meanwhile, the nation’s tax authorities started investigating Miuccia Prada and her husband, Patrizio Bertelli, in the fall. Also, the Matteo Marzotto trial got under way in November, after two delays earlier in the year.
The Prada and Bertelli investigations revolve around “the accuracy of certain past tax filings” relating to foreign-owned companies. This follows a “voluntary disclosure” to tax authorities in December 2013 that resulted in an agreement between the couple and Italian Tax officials.
“This agreement completely satisfied the claims of the Italian Tax Authority, as declared and confirmed by the Authority itself,” argued the company, adding that neither the firm nor any of its subsidiaries was or is involved in the matter.
It is understood that Bertelli and Prada last year paid 470 million euros, or $585.5 million at current exchange, to the tax office. “It’s an enormous sum, Prada and Bertelli themselves advised on the existing tax anomalies, brought back the [legal headquarters of the] company to Italy and paid the back taxes,” said a legal source, adding that any transaction with Italy’s tax office starting from a sum as low as 100,000 euros, or $124,576, is declared to the prosecutors. “It’s a standard procedure” in light of the large sum involved, said the source.
According to the source, the Agenzia delle Entrate, Italy’s tax agency, contested that Prada Holding BV had allegedly set up subsidiaries in the Netherlands and Luxembourg for a more favorable tax rate and only formally, but that they were not really operating out of those offices. In December last year, Prada revealed “the completion of a voluntary disclosure procedure, which follows the company’s strategic decision to choose Italy as its business hub.”
Prada and Bertelli have extinguished their fiscal debt by collaborating with the tax authorities, allowing the group to determine all tax obligations following the repatriation of non-Italian companies, based on the last 10 years — but this does not close out the investigation. The investigations related to Prada were complicated by the fact that Italy’s Parliament was still working on legislation regarding voluntary disclosures. The legislation was set to be completed by September 2015, and that would allow a de-penalization of the case. However, the legislation was approved this week and will take effect Jan. 1.
Prada and Bertelli’s lawyer Stefano Simontacchi said in September, “In relation to the procedure of voluntary disclosure finalized with the Agenzia delle Entrate in December 2013, since [the sum passed] the threshold of penal relevance, the acts of accession were automatically transmitted, as required by law, to the prosecutor’s office that initiated the investigation.”
The investigation is part of the process of the voluntary disclosure procedure already concluded with the Agenzia delle Entrate, he added.
The lawyer said once the new law takes effect, the case is expected to be resolved without further penalty.
For Marzotto, the allegations involve his family’s association with the sale of Valentino Fashion Group to private equity fund Permira in May 2007 for more than 782 million euros, or $976.7 million. Marzotto has in the past declared that he had “always operated in full respect of the law.”
According to the indictment, taxes on the profit derived from the transaction were never paid in Italy. Marking a possible turning point in fiscal trials, Marzotto’s lawyer, Paolo De Capitani, from the offices of one of Italy’s most notable fiscal lawyers, Victor Uckmar, cited the fourth article of the seventh protocol of the European Human Rights Convention. Accordingly, said De Capitani, a defendant “cannot be tried twice for the same fact, or ne bis in idem,” which is similar to the American “double jeopardy.” De Capitani said that, since Marzotto and his sister Diamante each paid 1.6 million euros, or $1.9 million, to the fiscal police “to avoid trailing judicial issues” related to the same facts at a fiscal level, they should not be indicted at a penal level. If Judge Orsola De Cristofaro accepts this objection, the decision would mark a significant departure from the current status quo as, until now, fiscal trials run parallel but independently of penal ones. Case in point is the acquittal of Dolce and Gabbana from charges of tax evasion at the highest court level in October, which may not prevent the designers from having to pay a fiscal fine to the state.
As for Dolce and Gabbana, after seven years, a five-member jury said in October that there were no grounds for a case, six months after the appeals court in Milan found the designers guilty of tax evasion. The latter confirmed a sentence issued in a lower court in June 2013.
The designers have always denied the charges and felt vindicated by the Corte di Cassazione, Italy’s equivalent of the U.S. Supreme Court. “We were sure of it!!! We are honest people!!!” Gabbana tweeted after the decision.
“I am very satisfied,” said a visibly pleased Massimo Dinoia, the designers’ lawyer, after the verdict. “We have been saying that they were innocent for the past seven years. Nobody can take back the negative publicity they received over these seven years, but we knew we were in the right all along.”
The designers were charged with tax evasion totaling 416 million euros, or $533.2 million, related to the 2004 sale of the Dolce & Gabbana and D&G brands to their Luxembourg-based holding company, Gado Srl, an acronym of their initials and an entity that the Italian tax police considered fabricated to avoid higher corporate taxes in Italy. The Supreme Court, meant to determine if there were any breaches or procedural flaws in the lower courts, “believes the criteria used to determine that Gado was a fictitious entity were wrong,” a legal source explained.
Dolce and Gabbana were exonerated after an acquittal from charges of fraud from a judge at the preliminary hearing level in 2011, a reversal at a higher court, new charges of tax evasion and two trials at lower courts.
These are by no means the only high-profile individuals to be targeted by Italy’s tax police. In addition to celebrities ranging from Sophia Loren to the late Luciano Pavarotti, Giorgio Armani, Valentino Garavani, and the Bulgari family, among others, have also had their share of fiscal troubles.
While claiming to be in the right, several fashion companies have recently agreed to settle with Italy’s revenue service in order to avoid lengthy and costly litigation and defense proceedings over the interpretation of the law or to avoid going to trial. Often the tax-evasion allegations hinge on the establishment of companies outside Italy, generally considered fictitious by the tax authorities and set up to avoid paying a higher tax rate in Italy.