MILAN — Milan-based prosecutor Laura Pedio confirmed on Monday that designers Domenico Dolce and Stefano Gabbana have been indicted on tax evasion charges.

This story first appeared in the November 23, 2010 issue of WWD. Subscribe Today.

Pedio told WWD she did not know “how long it will take” to set a date for a preliminary hearing. She declined further comment.

The designers’ legal strategy — whether they will decide to negotiate and pay a fine or opt for a lengthy trial to seek exoneration — is unclear.

If found guilty at a trial, the pair could be personally liable for more than $1 billion in unpaid taxes and fines. Dolce and Gabbana previously have denied any wrongdoing. Dolce & Gabbana Holding Srl did not comment on Monday.

The designers issued a personal statement in May 2009 denying the allegations, which relate to the 2004 sale of the Dolce & Gabbana and D&G brands to the designers’ Luxembourg-based holding company, Gado Srl. They said accusations were “based on a completely abstract calculation,” which enables the tax authorities to replace the sum actually paid with a hypothetical market value.

A Milan-based source said on Monday that “in many cases, this kind of accusation stems from the different interpretation of regulations. The state, which often doesn’t get to big-time tax evaders, tries to get to those who already pay their taxes, and ends up collecting one from the original 100 demanded.”

According to the accusations, each designer allegedly evaded taxes totaling 416 million euros, or $569 million at current exchange.

In their statement last year, Dolce and Gabbana explained they had “only actually received 360 million euros,” or $447.8 million, from the sale of the D&G and Dolce & Gabbana brands to Gado and had declared and paid everything that was owed to the fiscal authorities. They said that if the calculations of authorities were correct, their brands would have been worth 1.1 billion euros, or $1.37 billion, in 2004 — a notion at which they scoffed. There is also a separate criminal probe into supposed tax irregularities at the Dolce & Gabbana group. The accusations address unpaid taxes of 200 million euros, or $273 million.

The state fraud accusation stems from a police contention that Gado was little more than a legal entity, based in Luxembourg in the 2004-2005 period, and was allegedly used to avoid paying higher corporate taxes in Italy. The investigations were initiated by the Guardia di Finanza, an Italian police force under the authority of the national Minister of Economy and Finance. It is understood Gado’s headquarters were moved to Italy in 2007.

In the fiscal year ended March 31, revenues at Dolce & Gabbana Holding Srl fell 5 percent to 1.2 billion euros, or $1.7 billion.

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