Original article published in The Business Of Fashion.
A Milan court has convicted Domenico Dolce and Stefano Gabbana of tax evasion and sentenced the designers to one year and eight months in jail.
MILAN, Italy — Fashion designers Domenico Dolce and Stefano Gabbana were handed a 20-month suspended prison sentence and a heavy fine on Wednesday for hiding hundreds of millions of euros from the Italian tax authorities.
The design duo, who are nearly as famous as the stars they dress, were not present in court in Milan and will lodge an appeal against their conviction on charges that they have always denied.
“We will read the reasons for the verdict, and we will appeal,” said Massimo di Noia, one of the pair’s defence lawyers after the hearing.
Public prosecutor Gaetano Ruta had asked for a two and a half year jail term. However, the two designers will have to pay 500,000 euros as a first instalment of a fine that could reach 10 million euros ($13.4 million).
A spokesman for their Dolce and Gabbana company declined to make an immediate comment.
The success of Dolce and Gabbana’s sexy corset dresses and sharply tailored suits favoured by celebrities such as Kylie Minogue, Kate Moss and Bryan Ferry have earned them a glamorous lifestyle. In 2009 they hosted popstar Madonna, a friend and client, for her birthday at their villa perched above the chic Mediterranean resort of Portofino.
The case involves an investigation that began in 2008, when authorities tried to crack down on tax evasion as the financial crisis began to bite. But the Dolce and Gabbana inquiry is one of the few high-profile cases to come to trial so far.
The judge ruled that the pair sold their brand to Luxembourg-based holding company Gado in 2004 to avoid declaring taxes on royalties of about 1 billion euros ($1.3 billion).
Public prosecutor Laura Pedio told the court in her closing arguments that the designers were “well aware that they would reap a tax advantage from this transaction.”
Gado is nothing but a shell company that took no administrative or financial decisions, said Pedio. “Gado is a radio relay station,” she said. “The orders originated in Milan, and bounced from Luxembourg back to the Milan offices where the decisions regarding the brands were made.”
DESIGNERS SAY THEY ARE INNOCENT
The pair’s flamboyant designs are inspired by the island of Sicily, where Dolce was born in 1958. They showed their first collection in 1985 in Milan, the home city of Gabbana who is now 50. The brand took hold internationally in the 1990s and global revenues hit just under 1.5 billion euros in 2011.
The designers have always said they are innocent. “Everyone knows that we haven’t done anything,” Gabbana tweeted in June 2012 after the trial was ordered.
Gabbana’s only immediate reaction on Wednesday was to tweet a photograph of the branch of a citrus tree, a symbol of Sicily which is the duo’s signature, just seconds after the verdict was announced. A strand #freedolceandgabbana also appeared on Twitter.
BoF UPDATE: Wednesday 19 June, 10:30pm GMT: Lawyers for Messieurs Dolce and Gabbana have released a detailed statement: “Frankly speaking, we were astonished that our thesis on the regularity of everyone’s behaviour related to the taxes omission payment by Gado, was not accepted. In fact, the CEO of this Company together with other people including the designers, were found guilty of having contributed in a violation of the said taxes declaration omission. We will strongly appeal this part of the verdict, certain that the result will be over-turned in appeal. The absolution of the designers for the declarations related to their individual earnings is at the same time blatant and dramatic, because, notwithstanding the same fact was ruled as non-existent by today’s Court, the Internal Revenue Service might proceed with their operations against them, fining them for the excessive and surreal amount of money of more than 400 million Euros.”