Italian tax authorities continue to squeeze cash out of the fashion powerhouses that dress the world’s rich and famous. Last week, Giorgio Armani settled a tax dispute with the Guardia di Finanza over the use of overseas subsidiaries, paying €270 million ($373 million) to clear its name. Armani joins the likes of Dolce & Gabbana, Bulgari (Despite settling its tax case with Italy’s internal revenue service last year, Bulgari Group could be facing a trial. The judge at the preliminary hearing level in Rome is set to evaluate the state prosecutor’s charges on May 6 and decide whether a trial should take place.), and Prada, some of the biggest names in high fashion, which have all recently settled cases with the Italian taxman over the use of subsidiaries in Switzerland, the Netherlands, Luxembourg, or Ireland in order to disperse profits and lower their tax load.
In Giorgio Armani’s case, the company controlled by the eponymous designer, Italy’s tax man focused on their use of a subsidiary in Switzerland named GA Modefine. Starting in the early 2000s, Armani began a process of international expansion that saw the company open up foreign subsidiaries that were “effectively operational, with full resources and a robust organization,” according to Italian daily Il Sole 24 Ore.
By 2009, the company’s management chose to simplify their organizational structure in order to become more efficient, channeling their international operations through a subsidiary in Switzerland, which in turn kept another operational holding company. While the specifics of the alleged evasion weren’t immediately available, what is clear is that Giorgio Armani, the company, acknowledged it had been underpaying taxes, putting aside “prudent provisions against tax risks,” and raising their effective tax rate to 44.8% in 2012, from 38.5% a year before, and 28.5% in 2010. The €270 million settlement should clear the fashion house from further tax probes.
Italian tax authorities have stepped up their game amid a European sovereign debt crisis that has put pressure on public finances. The Guardia di Finanza have focused on the use of foreign European subsidiaries through which Italian companies, particularly in the luxury sector, have allegedly masked profits. Switzerland, Ireland, and the Netherlands emerge as the favorite destinations, with strategies such as the “Dutch sandwich” and the “double Irish.”
Several of the cases have involved some of the most high profile names in fashion. Dolce & Gabbana, for example, have been sentenced to 20 months in prison for tax evasion. The fashion power duo is accused of avoiding €200 million ($276 million) in taxes throughout the 2000s after having sold their brands to Luxembourg-based holding Gado, which they controlled. According to Il Sole, after paying their taxes in Luxembourg, Dolce & Gabbana handed over €40 million ($55.2 million) to the Italian tax man. After appealing, the Milan attorney general is pushing to get them acquitted.
The Bulgari family also suffered some public shaming by Italy’s Guardia di Finanza, which last year seized €46 million-worth ($64 million) of real estate, bank assets, and company stakes belonging to company executives including Francesco Trapani, nephew to billionaires Paolo and Nicola Bulgari. Trapani, who was in charge of LVMH’s watch and jewelry unit after the sale of controlling stakes in their company, was accused of relocating about €3 billion ($4.1 billion) in revenues to subsidiaries in Switzerland, Ireland, and the Netherlands. They settled for $57 million ($78.6 million) this year, according to WWD.
Prada is also under investigation, reports suggest, for using overseas subsidiaries in the Netherlands and Luxembourg. Miuccia Prada, along with CEO Patrizio Bertelli, and accountant Marco Salomoni have been named in the probe related to undeclared or false tax claims, according to Bloomberg, which noted the company paid backdated taxes last December. The sum is said to have been €420 million ($579 million).