As predicted, the long Italian Autumn/Winter season of tax evasion stretched into Spring and had its culmination just a couple of days before Summer arrived, on 19th June when a court in Milan declared Italian design duo Stefano Gabbana and Domenico Dolce guilty of evading around 400 million euros.
The tax evasion charges related to the sale of the Dolce & Gabbana and D&G brands to the designers' Luxembourg-based holding company Gado Srl (clearly, a rather daft acronym for the designer's surnames...) set up, according to the prosecution, to enable the design duo to avoid declaring over 840 million euros in sales to the Italian tax authorities in 2010.
Dolce and Gabbana were acquitted of tax evasion in April 2011 by a lower court that stated there was no foundation for a trial, but then they were charged again by the Italian Supreme Court that overturned that previous decision in November 2011.
According to prosecutors Laura Pedio and Gaetano Ruta, who called for the duo to be sentenced to two-and-a-half years in jail, Dolce and Gabbana engaged in a “sophisticated tax fraud”. Judge Antonella Brambilla, ordered the designers to pay 500,000 euros each in damages, and sentenced each to one year and eight months in prison; co-accused Luciano Patelli, the company's accountant, was also condemned to one year and eight months, while former Gado board member Cristina Ruella, former D&G srl executive Giuseppe Minori, and Alfonso Dolce, brother of Domenico, were all condemned to one year and four months.
D&G lawyer Massimo Dinoia denied the charges, highlighted how the designers were condemned together with four other co-defendants for issues that didn't fall under their direct responsibility, and said they would lodge an appeal. The duo will anyway remain at liberty pending the appeals process, as is customary under Italian law.
There are three interesting points to make regarding the vicissitudes of D&G. The first one is the coverage of this news story as told by the fashion media. Last week Vogue.co.uk published a piece entitled "Keep Dolce And Gabbana Out Of Prison!" While they probably aimed at reproducing in the title the appeal for acquittal of D&G's lawyer, the impression that the average reader not accustomed with cases of tax evasion in the fashion industry may have got was that Dolce & Gabbana were Sacco and Vanzetti. In many ways Dolce & Gabbana have instead the same problem former Prime Minister Silvio Berlusconi seems to have with courts/magistrates/the Italian justice system - they think judges are somehow conspiring against them (bizarrelly, the design duo and the ex-Prime Minster also share something else justice-wise: Dinoia has also been the lawyer of Karima El Mahroug, the main protagonist of the "Rubygate" scandal involving Berlusconi).
The second issue regards the attitude of the designers. When in the mid-'80s Aldo Gucci, son of Guccio Gucci, who was 81 at the time, was sentenced to serve a year and a day in federal prison for conspiring to evade more than $7.4 million in U.S. income taxes, he broke into tears in the court, told the judge he was deeply sorry for what had happened and added he was closing the last period of his life "very poorly, very negatively", then asked the indulgency of the court in determining the sentence. Yes, there was maybe a bit of fake theatricality in his pledge, but, after the court issued the sentence, Dolce & Gabbana remained defiant. Now, starting to cry in the court may be a bit over the top, but pretending you don't really care and posting happy Instagram pictures of the prickly pear cactuses in your Milanese shop proves you're in a superficially confused state of mind. Or maybe it can be compared to the behaviour of the representatives of criminal organisations who still smile at the camera while the police takes them away to show they're not afraid of the authorities and to remember young and easily impressionable people that the baddie is still cool, even when he gets caught.
The third point is directly inspired by the closing words of the lawyers' statement issued after the sentence. D&G lawyer Dinoia declared the case to be "the paradox of paradoxes" because the amount they were charged with evading "exceeded the income by a large margin". The statement claimed the allegations are untrue and highlighted that "the Internal Revenue Service might proceed with their operations against them, fining them for the excessive and surreal amount of money of more than 400 million Euros. Due to the fact that the two designers do not have this kind of money - as the judge stated today, that they have never earned it - most probably the Internal Revenue Service will attack their most precious part of their patrimony, which is their shareholding in the Dolce & Gabbana Company. We are anxious to even think of what the economic and social repercussion of this act might mean."
Many ordinary people with no global fashion houses à la Dolce & Gabbana who found themselves behind with tax payments (note: they hadn't evaded the taxes, they were behind payments) were sent court orders of payment that they couldn't honour, and, as a consequence of that, lost their possessions, patrimony or companies and, in some more tragic cases, ended up committing suicide. Among them there were quite a few entrepreneurs who committed suicide for sums that were less "surreal" than the one allegedly evaded by D&G, yet nobody issued a statement about "the economic and social repercussions" of their situations.
So the conclusion: there may have been an earthquake yesterday morning that shook the centre-north of Italy reaching also Milan and all those designers putting their final touches to their menswear shows. But there will never be any great earthquakes in the matter of fashion industry-related tax evasion in Italy if the authorities do not carry out in-depth investigations into the fashion industry.
D&G will never go to prison because, even if their appeal is rejected (and they have the right to appeal the verdict twice, so many years will pass before a final decision is taken), sentences of less than three years are served in Italy with house arrest or community service.
Yet, judging from the comments left by many Italians readers on the news articles regarding the D&G case, a swift punishment when tax evasion is ascertained would be a good deterrent to crack down on Italian companies using offshore centres (Luxembourg is among the main destinations to hide money abroad as corporate tax rates can be close to zero there, while they are about 28% in Italy).
Dolce & Gabbana is not the first high-profile tax evasion case (Aldo Gucci remains a "must" in the fashion industry records of tax evasions, but there are many more - in 1996 Armani was fined for paying off tax authorities in exchange for favourable audits; last year we saw the Marzotto case followed by the Bulgari investigation...) and it won't be the last one.
For what regards the fashion industry, tax evasion remains the tip of a larger and more complex iceberg that involves other crimes including labour exploitation and consumer fraud.
The funny aspect in this story? There has always been a trend in Italy for T-shirts with altered logos of famous fashion houses transformed into puns (the "Versace da bere" - literally meaning "Pour us something to drink" - T-shirt is just one of the many examples View this photo). You can bet the next one will be rather than Dolce & Capanna, "Dolce Condanna" (Sweet Sentence). In fact you may start printing them now: with all the money they are investing in this trial, surely D&G won't have the time and the financial resources to sue you as well.
Cartoon in this post by and courtesy of Frank Boyle
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