MILAN — After 10 months, a guilty verdict was once again handed down in the Domenico Dolce and Stefano Gabbana tax trial, which the designers’ lawyer immediately vowed he would appeal to Italy’s highest court.

This story first appeared in the May 1, 2014 issue of WWD. Subscribe Today.

The appeals court here headed by Laura Cairati upheld the decision of the lower court, ruling the defendants guilty, albeit with a two-month reduction in their jail sentences. None of the defendants will have to serve jail time, though, because their sentences are below the two-year minimum in Italy to do so.

After six hours of deliberations on Wednesday, anticipation about the verdict had been mounting and the three-judge panel briefly revealed its conclusion to a courtroom brimming with TV cameras and reporters. Cairati delivered the ruling quickly and, given the acoustics, hardly anyone moved in an attempt to catch her words — until she spoke and, after a stunned moment of silence as the judges filed out of the room and the audience realized the implications, chaos ensued.

The designers’ lawyer Massimo Dinoia, visibly bewildered, was at once surrounded by reporters. “I am speechless and astounded, this sentence is inexplicable,” said the usually unflappable Dinoia. “After all, the general prosecutor already realized there was really nothing [to the case]. We will surely present our appeal to the Corte di Cassazione [Italy’s equivalent of the Supreme Court]. This is an unfair verdict and we are sure the Cassazione will reform it.”

Dolce, Gabbana and accountant Luciano Patelli were sentenced by the appeals court to one year and six months of jail time. Last June, the Italian designers and Patelli had been sentenced to one year and eight months in jail, plus legal expenses for omitted tax declarations.

Dolce’s brother Alfonso, Dolce & Gabbana general director Cristiana Ruella and finance director Giuseppe Minoni on Wednesday were sentenced to one year and two months in jail plus legal expenses, below the original sentence of one year and four months.

The judges will file the reasonings behind their guilty verdict on June 20. The designers’ and Alfonso Dolce’s lawyer Armando Simbari said after the hearing that the appeal to the Cassazione will have to be filed within the first half of September. Simbari explained that a new state prosecutor would be nominated and that the Cassazione hearing would be held in Rome, be open to the public, and would be presided over by three judges. Simbari, who was also clearly affected by the outcome of the trial, said he could not yet outline the future appeal before seeing the motivations of the verdict delivered on Wednesday. A legal source explained that the Cassazione “can be addressed to evaluate if there have been any procedural flaws or breaches at a lower level.”

The designers, who never attended the trial last year, were not present in court, nor were usual fixtures Ruella, Alfonso Dolce and Minoni. Patelli, who never missed a hearing, was once again part of the audience. “We will carefully evaluate the reasons behind the decision of the appeals court and we will present our recourse at the Cassazione to prove that the company reorganization project proposed by Mr. Patelli was lawful, transparent and solid,” said Patelli’s lawyer, Giuseppe Bana.

His colleague, Fabio Cagnola, reiterated that “after all, the criteria [for the company’s restructuring] were recognized by the general prosecutor, who asked for Patelli to be cleared as the case is groundless.”

In June, Cagnola told WWD that “whatever happens, this verdict is not effective until after it has passed through the Corte di Cassazione.” When asked if the defendants will be granted probation, he explained that Italy’s legislation allows 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, Dolce and Gabbana 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.

The defendants’ lawyers filed their appeals in November and during the first hearing at the appeals court in March, Milan general prosecutor Gaetano Santamaria unexpectedly rebutted the allegations, overturning the tax service’s arguments, and asked for all the defendants to be acquitted. Santamaria said that the case was “groundless,” and that the verdict last year “contrasts with common sense.”

The defendants, who have always denied all charges, were acquitted last June on the second count with which they were originally charged, regarding the valuation of the company and the tax rate paid.

The defendants were originally absolved of the claims by a lower court in April 2011, but the Cassazione in November 2012 overturned that decision, saying that tax avoidance, or tax mitigation, on an earnings declaration is a criminal offense under the law. A trial at the first court level kicked off in December 2012 and wrapped up at the end of June last year. The appeal, which involved reading the papers already deposited in the case and not a completely new trial with testimony, began in March and ended on Wednesday.

In June, the defendants were also charged with paying the Revenue Agency a provisional fine of 500,000 euros, or $692,145 at current exchange. There was no mention of that fine in Wednesday’s ruling.

Separately from that penalty, the Revenue Agency has been claiming more than 400 million euros, or $553.7 million at current exchange, in unpaid tax based on what the agency thinks the designers should have made from the sale of the brands to Gado — a decision that the defendants are also appealing. Santamaria said in March that the designers have already paid 40 million euros, or $55.3 million, in tax.

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