Italian fashion designers Domenico Dolce and Stefano Gabbana have been sentenced to jail in Italy for one year and eight months for tax evasion. They were accused of hiding millions of euros from Italian tax authorities.
Lawyers for Dolce and Gabbana, whose celebrity clients include Beyonce and Madonna, immediately said they will be appealing, and under Italian law the sentence will be suspended in the meantime. Domenico Dolce and Stefano Gabbana were accused of having transferred control of their brands to a shell company in Luxembourg in 2004 and 2005 to avoid paying Italian taxes.
The investigation by the Italian authorities began around six years ago as part of a government plan to crack down on tax avoidance. At the hearing on Wednesday, the judge ruled that the designers moved their brand to a Luxembourg-based holding company Gado—a play on their two surnames—in 2004. He said they had done this to avoid declaring taxes on royalties of around 1 billion euros (£833 million; $1.3 billion). Prosecutors alleged they sold the business for well below actual market value.
In her closing speech at the trial, prosecutor Laura Pedio said there was rock-solid proof that the duo had committed sophisticated tax fraud. “Cases as complex as this one are the most insidious,” Pedio said, describing Gado as a sort of cloud with the consistency of gas. Fellow prosecutor Gaetano Ruta said Gado was an artificial construction the aim of which was to get a tax advantage.
The two join an increasing number of wealthy Italians facing scrutiny over their financial transactions, including Roberto Cavalli (eventually cleared), Valentino (fined), and former Italian Prime Minister Silvio Berlusconi (sentenced). Italy is thought to forfeit an estimated $150 billion a year in unpaid taxes, the third highest rate in Western Europe.