Kering is on the hook for failing to pay $1.6 billion in taxes in Italy between 2011 and 2017. The Paris-based luxury goods conglomerate, which owns Gucci, Saint Laurent, Balenciaga, and Alexander McQueen, among other brands, revealed on Friday that the audit unit of the Italian tax authorities “completed a tax audit” in connection with their investigation “pertaining to [Gucci’s] tax matters in Milan,” and found that “Luxury Goods International, a Swiss subsidiary of Kering, conducted business activities in Italy which should have resulted in payment of Italian corporate taxes.”
The results of the audit – which Kering says it “challenges both on the grounds and the amount” – come on the heels of claims that the luxury goods giant has been embroiled in a large-scale scheme to avoid paying taxes in Italy, and in an effort to do so, allegedly relocated about 20 employees from its French or Italian offices to Switzerland “as part of the tax optimization scheme, but alleged that some of them continued to effectively work in Italy.”
All the while, French publication Mediapart and Germany’s Der Spiegel reported last year that Kering “operates subsidiaries in the Netherlands and Luxembourg as shell companies to benefit from” the lower local tax rates in those countries. Kering has denied allegations of foul play since it was first reported in late 2017 that Gucci, in particular, was being probed as part of an investigation by Milan financial authorities in connection with suspected tax evasion.
According to Reuters, Kering “has said that LGI is a substantial firm in its own right, with 600 employees handling inventory, billing and supply-chain logistics, with a business model ‘known to French and other competent tax authorities.’”
The Milan tax authority’s audit “will now be reviewed by the Revenue Agency unit in charge of assessing the conclusions of the report, which shall then make its final determination,” Kering said in a statement on Friday.
Gucci is hardly the first Italian house to come under fire for tax-related claims, as Italian tax authorities have stepped up their game in recent years amid a European sovereign debt crisis that has put pressure on public finances. The Guardia di Finanza – Italy’s financial authority – has focused on the use of foreign European subsidiaries through which Italian companies, particularly in the luxury sector, have allegedly masked profits.
As a result, a slew of big-name Italian fashion figures became the targets of Italian tax evasion crackdowns over the past several years. Dolce & Gabbana founders Domenico Dolce and Stefano Gabbana, Prada’s chief executive officers Miuccia Prada and Patrizio Bertelli, Giorgio Armani, the Bulgari family, and former Valentino chairman Matteo Marzotto, among others, came under the Italian tax authority’s microscope for allegedly failing to pay up.