13-Dec, 16:12

06:31, December 05 55 0

2017-12-05 06:31:03
Gucci Falls Into Italy’s Tax Cross Hairs

Gucci, Italy’s greatest fashion success story and a brand whose renaissance has become a model the whole industry wants to emulate, is also being investigated as perhaps among its biggest tax evaders.

The Italian tax police searched the so-called Gucci Hub, the 377,000-square-foot campus in Milan that is home to over 250 employees, last week, as well as Gucci’s offices in Florence.

The search was part of a criminal investigation into the brand by the prosecutor’s office in Milan. The Italian newspaper La Stampa reported that the authorities were looking into whether Gucci should have paid as much as 1.3 billion euros, or $1.54 billion, in past taxes, a figure confirmed by a person briefed on the inquiry.

That would be among the largest tax bills to hit any brand in Italian fashion history, and among the largest bills ever in the country.

In a statement, the company said: “Gucci confirms that it is providing its full cooperation to the respective authorities and is confident about the correctness and transparency of its operations.”

At issue are Gucci’s long-established Swiss operations. The prosecutor’s office, Italy’s white-collar criminal authority, says that Gucci declared profits in Switzerland that should have been declared in Italy. The Swiss tax authorities tend to tax companies at a more favorable rate.

The inquiry is the latest in a string of tax investigations in Italy against prominent companies. Google settled a tax bill with the Italian authorities this year for $334 million; in 2015, Apple settled for around $350 million.

It is also the latest in a series of investigations into Italian fashion brands, most of which were settled by the companies involved to avoid expensive, extended litigation and the tarnishing of their image. Giorgio Armani, for example, agreed to pay $373 million in 2014; Miuccia Prada and her husband, Patrizio Bertelli, paid a reported $571 million in 2013; and Bulgari settled for $78.6 million in 2015.

Dolce & Gabbana spent seven years fighting accusations that it created a Luxembourg-based company to shelter its profits. Though the brand and its owners, Domenico Dolce and Stefano Gabbana, were originally convicted, in 2014 the Court of Cassation in Rome, Italy’s highest court, cleared them of all charges.

Even on such a list, however, Gucci’s case stands out, because of the extremely large sum involved; the fact that the fashion brand is owned by Kering, the French luxury and sports lifestyle group that also owns Bottega Veneta, Saint Laurent and Balenciaga, among other names; and Gucci’s reputation as the fairy tale of fashion. (Kering declined to comment further.)

Gucci’s astonishing recent growth — 48 percent in comparable year-on-year sales in the first quarter of 2017, 39 percent in the second quarter and 49 percent in the third — has made both the chief executive, Marco Bizzarri, and the creative director, Alessandro Michele, the toast of the industry.

Gucci was ranked 47th on Forbes’s Most Valuable Brands list this year, with a value of $12.7 billion as of May. Last year at the Fashion Awards in London, Mr. Bizzarri was given the International Business Leader award, and Mr. Michele won the International Accessories designer award. The same year, Mr. Michele also won the International Award at the Council of Fashion Designers Awards in New York.

It may be exactly that halo that caused the prosecutor’s office to focus on the brand.

“They could become the poster child of a new world order of tax avoidance,” said Leopoldo Zambeletti, an independent strategic adviser and former banker at JPMorgan Chase. “What better way to show you mean business than to take on the biggest, shiniest name?”

Luca Solca, head of luxury for the investment firm Exane BNP Paribas, was more sanguine. “The Italian tax authorities have been challenging a number of tax optimization frameworks — the case of Luxottica, Dolce & Gabbana and several others come to mind — with different levels of success,” he said.

Noting that Gucci had established significant operations in Switzerland, he added: “I presume that this is one legitimate reason why their tax rate is lower. I’m expecting a measured reaction.”