Kering headquarters

MILAN The Italian tax authorities are claiming Kering owes them an estimated 1.4 billion euros in unpaid back taxes.

The figure covers the 2011-2017 period, which the authorities have been investigating since 2017. The allegation is that Luxury Goods International, a Kering subsidiary, was based in Switzerland, but conducted business activities in Italy, which should have resulted in the payment of Italian corporate taxes. It is alleged that, in Switzerland, LGI would benefit from a lower tax rate. The French luxury group contests this assertion.

The audit report was delivered on Friday and is to be reviewed by the Revenue Agency unit, which will make the final decision on the matter.

In a statement, Kering on Friday said it “challenges the outcome of the audit report both on the grounds and the amount. Kering is confident about the proceedings currently under way and will continue to fully cooperate in complete transparency with the Italian tax authorities in order to defend all its rights. At this stage of the proceedings, Kering does not have the necessary information to record a specific accounting provision based on a reliable estimate of the tax exposure.”

As reported, it is understood Gucci, controlled by Kering, is at the center of the investigation, but the statement makes no mention of the brand.

Kering concluded by stating that it has “implemented a strict monitoring of its tax risks and has adopted a prudent approach in the appreciation of its tax exposures, and notably those related to the transfer pricing policy applied by the group.”

In November, Kering said it was cooperating with Italian authorities following a report that Milan prosecutors have wrapped up a probe into alleged tax evasion, which could lead to a trial.

Kering has said LGI was established in the Nineties, prior to the group’s acquisition of then-Gucci Group, and now employs more than 600 people.

“LGI is a strategic hub namely for the centralized distribution and logistics of Kering brands,” contended Kering last year.

“All of the group’s companies established in Switzerland carry out tangible business activities. As a result, the group pays its due taxes in Switzerland, in compliance with the law and the fiscal status of the company. This business operating model is known by French and other competent tax authorities,” it added.