The headline-making investigation of Kering that centered on its marquee Gucci brand may have settled this spring when the Paris-based conglomerate agreed to hand over $1.4 billion in unpaid taxes, but the since-settled probe is allegedly far from over. According to Bloomberg, on the heels of the Kering settlement, which has been called the highest ever agreed by a company with Italian tax authorities, Italian tax authorities are “broadening their focus to individual managers’ pay during the period in question,” namely, between 2011 and 2017.
Bloomberg revealed on Tuesday that the Guardia di Finanza, the arm of Italy’s national police force that specializes in financial crimes, “notified current and former [Gucci] executives that they were being investigated over salaries they received from companies in Switzerland for work done for Gucci in Milan.” The publication further reports that the executives ensnared in authorities’ ongoing investigations “could owe tens of millions of euros in back taxes.” Kering – which owns Gucci, YSL, Balenciaga, Bottega Veneta, and Alexander McQueen, among other brands – said on Tuesday that there is “nothing new in these allegations.”
The news comes in light of Kering’s confirmation in May that while the company, itself, is out of the equation thanks to the terms of its settlement, Gucci’s current CEO Marco Bizzarri and former CEO Patrizio Di Marco would remain under investigation in the case, “in their capacity as legal representatives of the company.” Bizzarri has since settled with the financial authorities, per Bloomberg.
Kering and Gucci initially made headlines almost two years ago when Italian publication La Stampa reported that Italian tax police visited Gucci’s Milan and Florence offices in early December 2015 in connection with Gucci’s alleged failure to pay national “taxes on profits generated by sales in Italy,” and instead, opted to pay “in another country with a more favorable tax regime.” That other country? Switzerland, the home of Kering subsidiary Luxury Goods International.
The Italian financial authorities’ audit subsequently uncovered that Lugano, Switzerland-based Luxury Goods International “conducted business activities in Italy [that] should have resulted in payment of Italian corporate taxes,” but instead, opted to pay a more preferable tax bill in Switzerland. Kering said in a statement in January 2019 that it “contests” that finding before it ultimately agreed to settle the matter for $1.4 billion dollars.
While Bloomberg notes that “the scandal has cast a pall over Gucci’s blockbuster turnaround” under the watch of Bizzarri and creative director Alessandro Michele, the brand’s bottom line has hardly suffered, with its revenue growth rate coming in just shy of 50 percent for 2017, and its sales topping $8 billion for the first time ever in 2018.
On a larger scale, the Gucci-centric probe is demonstrative of an ongoing effort to crack down on the tax-avoiding ways of Italian luxury brands, as Italian tax authorities have increased their efforts in light of a European sovereign debt crisis that has put pressure on public finances.
The Guardia di Finanza 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, have all been subject to Italian tax authority scrutiny for allegedly failing to pay up.
As for what is new news, Kering announced on Tuesday that its entire group of luxury brands will become carbon neutral. The comes just weeks after revealing that Gucci will be carbon neutral by the end of September. In a statement, Kering chairman and CEO François-Henri Pinault said, “We all need to step up as businesses and account for the GHG emissions that we generate in total. Kering is committing to becoming completely carbon neutral as a group across all our operations and supply chains.”“While we focus on avoiding and reducing our GHG emissions to meet our Science-Based Target, we will offset all our remaining emissions and support the conservation of vital forests and biodiversity around the world,” Pinault further stated.