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Dolce and Gabbana face £320m tax fraud case


They are accustomed to bathing in the adulation of models and fashion critics as they parade down the catwalks of Milan.

But Domenico Dolce and Stefano Gabbana's next public appearance in Italy's fashion capital will take place under rather less glamorous circumstances, as the famed stylists face a trial for alleged tax avoidance on an epic scale.

Monday will see the start of a trial in which they are accused of evading more than €400 million in tax when they sold their D&G and Dolce & Gabbana brands to a holding company, Gado, which they set up in Luxembourg in 2004.

Prosecutors say the complex arrangement enabled the duo, whose friends and clients include Angelia Jolie, Scarlett Johansson, Monica Bellucci and Naomi Campbell, to avoid paying higher taxes in Italy and instead pay at a lower rate in Luxembourg.

Investigators say the price at which the companies were sold – €360 million – was about one third of their true market value.

The designers vehemently deny the allegations and have called the charges "absurd" and based on "a completely abstract calculation" of their companies' market value.

The business partners, regarded as gods in a pantheon of Italian fashion icons that includes Versace, Valentino and Armani, face prison sentences of up to five years if found guilty. Six associates of the duo will also be on trial, including their tax consultant, prosecutors say.

The trial comes as Mario Monti, Italy's straight-talking technocrat prime minister, has declared the government to be "at war" with tax evaders, in a country in which until recently tax dodging has been regarded almost as a national sport.o

"Some measures adopted by the government against tax evasion may seem like war measures and, in reality, they are," Mr Monti said last month.

His predecessor, Silvio Berlusconi, was famous for his soft stance on tax evasion, even suggesting that it was justified if tax rates exceeded a certain level.

But since Mr Monti replaced him a year ago, he has led a crackdown on rampant tax dodging, which is estimated to cost the country around €115 billion a year.

The black economy, including undeclared income, makes up as much as 17 per cent of gross domestic product, according to the national statistics agency.

In an effort to claw back money for the exchequer, high-profile raids have been conducted by tax inspectors and finance police on upmarket ski resorts, and tax evaders have been portrayed in a hard-hitting television campaign as bloodsucking parasites.

Despite the gravity of the allegations, Dolce and Gabbana will not necessarily attend for the first days of the trial, when the timetable for witnesses will be determined. "They are not obliged to appear in court," Laura Pedio, one of the prosecutors in the case, told The Sunday Telegraph.

"They are each accused of evading around €200 million in tax so that's €400 million altogether. We'll be establishing the initial timetable for the trial. Six other people are involved, including their tax consultant."

A spokeswoman for Dolce and Gabbana in Milan refused to comment about the case. Lawyers for the fashion tycoons also declined to comment to The Sunday Telegraph.

Once dubbed the "Gilbert and George of Italian fashion", Dolce and Gabbana are known for immaculate tailoring, sensual clothing and a design aesthetic inspired by Sicily, where Dolce comes from.

Their latest advertising campaign features Monica Bellucci and dark-haired models dressed in the sort of black clothes and pinstriped suits traditionally associated with the island's peasantry and mafiosi.

"The first piece of theirs that I wore was a white shirt, very chaste, but cut to make my breasts look as if they were bursting out of it," Isabella Rossellini, the Swedish-Italian actress, once said.

But the long-running trial has earned them attention of a much less welcome kind. Investigations into the alleged tax fraud began in 2007.

A court initially cleared the partners of the allegations in April 2011, but Italy's highest court overturned that acquittal in November last year and ordered that the case should be sent back to trial.

The decision of the Supreme Court in Rome prompted a tirade on Twitter from Stefano Gabbana, who called Italian tax authorities "thieves".

"It's really true that in Italy they do whatever they want, whenever they please," he told his 164,000 followers. "Maybe it would be better to leave the country."

While the design duo received Twitter messages of support from fans, there was criticism from some Italians who said they should not have moved their businesses abroad. "If you leave Italy, don't forget to pay back all those taxes. And don't come back!" wrote one woman on Twitter.

Dolce and Gabbana are the latest in a long line of celebrities to have fallen foul of Italy's taxman, although most prior cases were settled out of court.

In 2000, the late tenor Luciano Pavarotti settled a four-year dispute and paid more than €9 million in back taxes to Italy. Former MotoGP world champion Valentino Rossi agreed to pay €39 million to Italy's tax agency in 2008 after a lengthy investigation.

Diego Maradona, the Argentine soccer great who played for Napoli in the 1980s, owes Italy around €38 million in unpaid taxes.

The national debt collection agency, Equitalia, has been seeking payments from the player since 2005. Every time he returns to the country, tax authorities pounce on him.

In 2005 they seized thousands of euros he had earned for participating in the Italian version of the television show "Dancing With the Stars." A year later the authorities seized two Rolex watches worth around €11,000 when Maradona returned to Naples for a charity match.

This is interesting considering a few days ago there was an announcement that Scarlett Johansson would be the"face" of their new fragrance called "The One Desire". Wonder how this will affect that estimated $150 million dollar profit. Mo Money, Mo Problems.


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