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Image: Gucci

Kering has agreed to pay a record $1.4 billion to to settle a nearly year-and-a-half dispute with Italian authorities after allegedly failing to pay $1.6 billion in taxes in Italy between 2011 and 2017 in connection with its marquee Gucci brand. According to Reuters – the Paris-based luxury goods conglomerate, which owns Gucci, Saint Laurent, Balenciaga, and Bottega Veneta, among other brands – Kering has denied avoiding taxes, but “by agreeing to a settlement has spared itself of having to pay even more interest and sanctions for late tax payments.” The settlement is the highest ever agreed by a company with Italian tax authorities.

The settlement will see Kering pay “897 million euros ($1.01 billion) in back taxes,” plus interest payments and penalties, as well as  an additional tax charge of 600 million euros ($673.51 million)  in its 2019 financial accounts. While the François-Henri Pinault-led group will be out from under the microscope of Italian tax authorities as a result of the settlement, Gucci’s current CEO Marco Bizzarri and former CEO Patrizio Di Marco remain under investigation in the case, “in their capacity as legal representatives of the company,” Kering confirmed on Thursday. Per Reuters’ sources, “That investigation is expected to lead to a separate settlement once Kering starts paying the money to tax authorities.”

The news of settlement comes four months after Kering revealed 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 were subject to review by the Revenue Agency unit – followed from 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.” From the outset, both Kering and Gucci have “challenged the grounds” of the tax police’s probe.

As for the $1.4 billion sum and potential stigma of the settlement, “while clearly not a positive for the [conglomerate’s] stock,” Jefferies analyst Flavio Cereda wrote in a note, “it is a one-off and one that Kering can fortunately afford.”