After roughly four years of legal proceedings and a couple guilty verdicts (think: the lower court’s ruling and the court of appeals’ ruling) in connection with charges of tax evasion, Dolce & Gabbana’s founders, Domenico Dolce and Stefano Gabbana, were deemed to be free of liability in October 2014. Just over a year ago, Italy's high court – complete with a five-member jury – overturned the two lower courts' rulings (including both judges' strongly-worded opinions as to why the two designers are, in fact, guilty), which held the Italian designers were guilty of hiding hundreds of millions of euros from Italian tax authorities in connection with the 2004 sale of the Dolce & Gabbana and D&G brands to the designers’ Luxembourg-based holding company, Gado Srl.
Specifically, the lower courts held that Dolce and Gabbana, as well as other company execs, used Luxembourg holding company Gado to avoid paying taxes on royalties of about $1.38 billion, and that despite their suggestions otherwise, the two designers were well aware of the allegedly tax evading activities and their legal ramifications. Well, as of this week, the Italian Supreme Court’s decision has been made public.
The Supreme Court held the fiscal advantage that Dolce and Gabbana derived from the existence of their Luxembourg holding company is not illegal based solely on the fact that they “exploited the opportunities offered by the market or by a more convenient fiscal legislature.” According to the court, “The fiscal advantage is illegal only if it “is obtained through situations that are not consistent with reality or are a pure ploy.” Moreover, “The exclusive research of a fiscal gain is not in itself enough to prove an evasion, especially when the economic operation is real and effective.”
WWD recently took the court’s opinion into account, noting:
Addressing the omitted declaration of taxes allegedly committed by the designers and their fellow defendants, the Supreme Court highlighted “the mistake” of the judges at the lower levels who believed the prosecution’s accusations. The designers were charged with alleged tax evasion totaling 416 million euros, or $533.2 million, 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 considered Gado essentially a legal entity used to avoid higher corporate taxes in Italy.
This certainly proves interesting considering the preceding rulings that found the designers' behavior to be "intentional" and the designers were “certainly” aware of the fact that their activities were illegal.