Celebrity designer couple Domenico Dolce and Stefano Gabbana could spend 18 months in jail after they lost an appeal in a tax evasion case where it is alleged they failed to pay about â‚¬40 million (US$55 million) in taxes to the Italian Government.
It was a surprise verdict when even the prosecutor who had brought the case had asked the judges to acquit the pair.
Prosecutors alleged that the pair had sold their Dolce & Gabbana and D&G brands to Luxembourg-based holding company Gado Srl in 2004 to avoid paying taxes in Italy.
However the pair have vigorously denied that was the purpose of the sale.
For many years Italian companies have established offshore subsidiaries, particularly in Luxembourg, to evade or avoid taxes.
However even the prosecutor accepted that Gado was a real operating company and not just a shell company created to avoid paying tax in Italy.
Dolce and Gabbana have said they will appeal the verdict to a higher court.
The couple’s lawyer Massimo Dinoia told The Wall Street Journal that the pair are ‘shocked’ by the verdict against them.
‘I’m speechless,’ Dinoia said on Wednesday, ‘The prosecutor himself asked for them to be cleared.’
The move against Dolce and Gabbana appears to be part of a pattern of actions by the Italian Government against Italian fashion brands to get them to bring their operations home.
In December the luxury giant Prada avoided any potential tax avoidance charges in relation to its Luxembourg subsidiaries by voluntarily bringing them back to Italy.
Prada also agreed to pay the amount of tax they would have been charged if their subsidiaries were in Italy for the last 10 years.