MILAN — The Italian tax police continue their aggressive prosecution of fashion industry designers and executives.

This story first appeared in the July 22, 2013 issue of WWD. Subscribe Today.

In the latest development, former Valentino chairman Matteo Marzotto, his sister Diamante and three others have been indicted for alleged omission of earnings declaration and tax evasion of more than 71 million euros, or $93 million at current exchange. A trial will take place in a Milan courthouse. The timing is yet to be determined, but it could commence either before the end of the year or in early 2014, according to a well-placed legal source.

The allegations involve the 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 $1 billion.

Matteo Marzotto declined to comment on Friday. Also indicted were real estate entrepreneur Massimo Caputi; Bart Zech and Pierre Kladny, respectively administrator and president of the board of International Capital Growth, a firm the tax police believe to be a fictitious entity based in Luxembourg but managed in Milan, and allegedly created for the purpose of selling 29.9 percent of the Valentino group. According to the indictment, taxes on the profit derived from the transaction were never paid in Italy. This allowed the accused to net a capital gain of 200 million euros, or $256.7 million, and elude the payment of more than 71 million euros in taxes, the police claim. The probe was initiated by state prosecutors Gaetano Ruta and Laura Pedio, who have also been heading up the Domenico Dolce and Stefano Gabbana tax case, which wrapped up in June.

RELATED STORY: Dolce, Gabbana Found Guilty in Tax Trial >>

Eight ICG partners, including Vittorio Marzotto and members of the Donà dalle Rose family — another branch of the Marzotto family — opted for plea bargaining a six-month sentence converted into a fine. ICG paid about 57 million euros, or $75 million, to the Agenzia delle Entrate, Italy’s internal revenue service, this spring. “They reimbursed the damage to the state, so this allays the fine,” said a legal source. Another source wondered about the reasons behind the choice of Matteo Marzotto and the others not to plea bargain. “Perhaps this would prevent them from a possibility to hold public office in the future,” he reasoned.

In November, Matteo Marzotto declared that he did not hold operative roles in the company, in which he was a minority shareholder. “I believe, together with the other individuals involved, that I have always operated in the full respect of the law, so much so that this operation had been at the time communicated in all its details to the authorities of the bourse and to the press,” Marzotto said at the time.

According to a well-placed legal source, “the hypothesis is that a foreign company allegedly based in Luxembourg was solely created for the sale of the Valentino brand to Permira,” and that it was closed after the sale. The accusation is that ICG was an Italian company that should have paid taxes in Italy, as it did not list headquarters in Luxembourg and was managed from Italy, where its executives resided, said the source.

Permira acquired 29.6 percent of VFG from the Marzotto family’s ICG for 782.6 million euros, or $1 billion, in May 2007. Permira then took control of VFG with some members of the Marzotto family through Red & Black Lux Sarl, shelling out about $3.55 billion for the group, which included a majority stake in Hugo Boss — at the time Permira’s prime motivation for the deal.

In 1998, founder Valentino Garavani and his business partner, Giancarlo Giammetti, sold the company to the now-defunct Holding di Partecipazioni Industriali for $233 million, three times the house’s direct revenues. Valentino languished in the red under HdP, and Marzotto bought the designer company in 2002 for $210 million (including Valentino’s net debt of $179.2 million), putting the designer under contract. Marzotto, which started out as a woolen mill in 1836, made its first fashion foray when it bought Hugo Boss in 1991. In 2005, Marzotto spun off Valentino, a controlling stake in Hugo Boss and other clothing assets into the new VFG, listing it on the Milan Stock Exchange. Valentino was delisted in 2008.

In July of last year, Mayhoola for Investments, an investment vehicle backed by a private investor group from Qatar, agreed to acquire VFG for about 700 million euros, or $858 million, from Red & Black Lux.

The Marzottos are the latest in a long line of Italian fashion industry figures to be targeted by the country’s tax police.

The affable and eloquent Matteo Marzotto is one of the best-known heirs to the Marzotto textile dynasty, embodying the young industrious entrepreneur, as well as one of Italy’s most eligible bachelors — famously dating Naomi Campbell, among others.

After leaving Valentino in 2008, Marzotto took over the Vionnet business with partner Gianni Castiglioni, Marni’s chief executive officer, in 2009, with plans to resuscitate it. That same year, he published his autobiography, “Volare Alto” (“Flying High”).

He first sold a majority stake in Vionnet in May 2012 to the Luxembourg-based GoTo Enterprises Sarl, controlled by Goga Ashkenazi, and eventually sold all remaining shares and left the company in January.

Marzotto, who is the son of Umberto Marzotto, sits on the board of his family’s company, and on those of Brunello Cucinelli and of watch and jewelry brand Morellato. He was nominated president of the prestigious business school Fondazione CUOA last month and is president of the Italian fashion contest Mittelmoda.

While the Marzotto group was first founded in 1836 as Lanificio Luigi Marzotto & Figli by Luigi Marzotto, Matteo Marzotto’s grandfather Gaetano Marzotto shaped the family company, based in Italy’s Valdagno, into one of the country’s preeminent textile manufacturers.

Matteo’s uncle Pietro, the former chairman and ceo of the group, spearheaded its expansion in the Eighties and Nineties and engineered the acquisition of men’s wear giant Hugo Boss in 1991. Pietro Marzotto, who has not been targeted by the tax police, was pushed out of the family’s company in 2003 by a new shareholders’ pact established by some of the Marzottos.

In recent years, Italian tax authorities have targeted numerous prominent fashion figures ranging from Giorgio Armani to Garavani and Giammetti to, most recently, the Bulgaris. Almost all the cases were dismissed, although Dolce and Gabbana, the first Italian designers to actually be tried in court for tax evasion, were found guilty in June, yet acquitted on the second count they were originally charged with, which regarded the valuation of the company and the tax rate paid. In June, Judge Antonella Brambilla sentenced Dolce and Gabbana to one year and eight months in jail, plus legal expenses. The designers have denied the charges and are appealing the verdict.

Hard feelings remain. On Friday, Dolce and Gabbana kept the doors of their Milanese stores closed as a sign of protest following the publication of a story on Thursday in Italy’s daily Il Giornale — a protest expected to continue until Monday. In the article, Milan’s councilor for productive activities, Franco D’Alfonso, was quoted saying that Milan should not agree to any potential request by “designers like Dolce and Gabbana if they submit requests for public spaces. [Italian] fashion is an excellence in the world but we don’t need to be represented by tax evaders.”

Gabbana issued a strong response to D’Alfonso via Twitter, harshly attacking the city of Milan. “The City of Milan makes me sick!!!” and “Shame on you!!! Boors” were two such tweets.

On Saturday, the designers took a two-page ad in Italy’s main newspapers, Corriere della Sera and La Repubblica, saying they were “no longer willing to be unjustly subjected to the accusations of the Guardia di Finanza [the country’s tax police], the Agenzia delle Entrate [the Revenue Service], the prosecutors’ attacks and the media shackles endured for years now.” They explained they were “indignated” by the way the city of Milan had treated them, a city they were “grateful to” but also one whose “prestige and international visibility” they had contributed to. The designers, who each signed the ad, noted that the 250 employees of the nine Milan stores will be regularly paid despite the three-day closure.

Also, Dolce and Gabbana attached an excerpt from a list of Milan’s main 2005 tax contributors published by newspaper Il Sole 24 Ore in 2008 where they ranked fourth and fifth, respectively. This was before the fiscal authorities began their attacks, they said.

On the second page, the three lawyers who defended the designers during the trial explained how 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, underscoring that the judge deemed there was no case to proceed. The lawyers are also going to appeal the guilty sentence 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.

On Sunday, Milan’s mayor, Giuliano Pisapia, responded in La Repubblica saying that he and the city were the ones to be “indignated” and that the designers should apologize to Milan.

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