Brazilian luxury retailer Victor Hugo has seen its assets blocked after authorities claimed it owes 300 million reals, or $80.2 million at current exchange, in back taxes and accused it of manipulating offshore accounts in Brazil and Uruguay.
Judge Livia Maria de Mello of Rio de Janerio’s 8th Federal Fiscal Execution Court ordered that the 70-store chain’s revenues be seized and rerouted to a government account to satisfy the tax debt. This specifically includes 50 percent of seven customer payments and 30 percent of credit card payments processed by Cielo, Redecard and American Express.
Rio de Janeiro-based Victor Hugo has vowed to appeal the judge’s decision to salvage its business, which observers say will likely survive. They added the company’s debts and fraud charges are not as grave as those that faced Daslu, the renowned luxury retailer that imploded in 2009 after now-deceased owner Eliana Tranchesi was sentenced to 94 years in jail following a highly visible criminal ring, tax evasion and document forgery case.
“This is not another Daslu,” said luxury analyst Diego Stecchi, adding that the scope and scale of both cases don’t seem comparable. “But the government chose a visible target to send a powerful message to all industries that they need to pay their taxes, not just to the fashion industry.”
Daslu’s illegal activity occurred during former President Lula’s years when fashion luxury purveyors were known to use logistics or phantom enterprises and fake invoices to flout import and other taxes.
“That is no longer the case,” added Stecchi. “Now all international companies and brands pay their taxes and duties and the industry is in much better health.”
Fabio Perelli, a senior tax lawyer at Garrigues in São Paulo, said Victor Hugo has “many alternatives” to reduce the severity of the judge’s injunction. “I don’t think the decision will stay like this for a long time. Victor Hugo can get a bank or insurance guarantee to reduce the scale of the seizure while its appeal takes course.
“This could take over two years because the case is in the lower courts right now and the government and the company can go to the Supreme Court if they need to,” Perelli added.
Victor Hugo could not be immediately reached for comment.
Founded by Uruguayan entrepreneur Victor Hugo Alves, the company sells luxury purses and accessories and is marketed as “a synonym of good taste, style and elegance for refined women that want to always be in fashion.”
Victor Hugo is said to operate 70 franchised standalone stores and also sells bags, accessories, eyewear and watches in dozens of multi-branded boutiques across Brazil.