MILAN — Italy’s Internal Revenue Agency is allegedly targeting a number of current and former Gucci employees although the brand’s parent company, Kering, has settled its tax dispute with the country.
As reported, the investigations of the Italian tax authorities, which focused on Kering’s tax payments related to the sales in Italy of Gucci products between 2011 and 2017, identified a tax evasion of 1.4 billion euros. According to the accusations, in distributing Gucci products in Italy through a directly operated Switzerland-based company named Luxury Goods International, Kering had intentionally avoided the payment of taxes in Italy. As reported, in May Kering said it was settling and signing an agreement with the Italian Revenue Agency to regularize its fiscal position in the country.
According to a source, Kering will by the end of this month pay a total sum of 1.25 billion euros, including 897 million euros in additional taxes, to the Italian Revenue Agency. Once Kering has settled the tax litigation with the tax agency, legal sources believe the penal investigation will be closed. The two investigations are generally parallel yet separate in Italy and have to be dealt with separately.
Italy’s tax agency has now shifted its focus from Kering to individual employees within the French fashion group. One source told WWD that the probe is targeting individuals also in executive positions. The fines could add up to several millions in unpaid taxes. According to the source, around a dozen Gucci employees last month received a letter for a tax assessment from the Agenzia delle Entrate, Italy’s Internal Revenue Agency, questioning whether they actually resided in Switzerland. The Italian Revenue Agency has become increasingly more aggressive toward fiscal elusion, contended a source. “The system created by Kering was legitimate and legal for many years, but the legislations have changed and become increasingly tighter.”
Kering said on Wednesday that there was “nothing new in these allegations” and had no further comment.
According to sources, the Italian tax agency believes that to justify paying taxes in Switzerland, Kering allegedly fictitiously transferred a number of Gucci executives employing them with Swiss work contracts and questionable Swiss residence, while they were actually based in Milan.
The employees involved don’t have much choice, said a source. “There are no options but to pay. The alternative is to turn to a tax commission and dispute the requests, but a judge could seize their goods and block their accounts,” said a fiscal source.
To improve efficiency, the French group is building a new warehouse in Trecate, near the Northern Italian town of Novara, and a new site in New Jersey and the decision will impact around half of the 800 employees working in Cadempino, near the Swiss city of Lugano, as 400 employees will relocate to the new complex in Italy. The project is expected to be delivered over the next three years, from 2020 to 2022. The group attributed the decision to build a new site in Italy to its recent growth and changing business models. The move pertains to all brands under the Kering umbrella, ranging from Gucci and Balenciaga to Alexander McQueen, Bottega Veneta and Pomellato. At the time, asked if the move from Switzerland to Italy was related to Kering’s recent tax issues, a spokesman denied any connection. “The Group strategy and organization — and in particular the geographic settlement of our subsidiaries — is strongly grounded on business and operational reasons and is not dictated by tax considerations,” he said, emphasizing that the announcement rests “purely on a business rationale.”
Kering’s move to Switzerland dates back to the mid-Nineties.
Kering’s settlement, one of the biggest with the Italian tax authorities, is expected to significantly impact the group’s 2019 results. In particular, the income statement will include an additional tax charge of about 600 million euros and the cash flow statement will feature an outflow of 1.25 billion euros. In 2018, Kering posted revenues of 13.7 billion euros.