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07/26/2013

Dolce & Gabbana to fight court ruling they evaded $52.9 million tax bill

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Italian police officers stand in front of a window of a closed Milan Dolce & Gabbana store, last week. The sign on the window explains they are 'closed for indignation' reasons.  (Alessandro Garofalo/Reuters) 

One of the most successful Italian fashion houses is in a bit of trouble with Italian tax authorities.

Last month, a Milan court convicted Domenico Dolce and Stefano Gabbana for not paying 40 million euros ($52.9 million) in taxes between 2003 and 2004, Bloomberg reports. The Italian government said the fashion house's holding company, the Luxembourg-based Gado, was supposed to file tax returns in Italy.

Dolce and Gabbana were sentenced to 1 year and 8 months in prison. However, they both deny they have done anything wrong and they are appealing the courts ruling. 

Italy, along with many other southern European Union countries, is having a serious cash flow crisis and suffering under austere financial policies. Cracking down on tax evaders has moved to the top of the weapons list for EU government's trying to raise money. 

In an exclusive interview with Bloomberg, the two insisted they will not be making part of their company public and that they are firmly in control of their fashion empire. Last year, Dolce & Gabbana's consolidated revenue was $1.46 billion and they consistently make the Forbes list of billionaires. They rank #11 in Italy and #736 overall.

"Everybody knows we are innocent. We are here, we are strong, we work," Gabbana said.

And there is no way the duo will either leave the country or give up on Italy.

"We believe in Italy," Gabbana said.

But the duo does not take lightly to criticism. Last week, a Milan city council official called referred to them as tax evaders in the press and in retaliation, Dolce & Gabbana shut their boutiques in Milan, the New York Times reports.

The stores were "closed out of indignation" for three days.

They also took out full-page ads in some of Italy's newspapers along with The International Herald Tribune decrying "continuous slander and insults" by tax authorities, the press and prosecutors, said the Times.

Now, the mayor of Milan wants to meet with them to make peace. 

Tanya Talaga is the Star's global economics reporter. Follow her on Twitter @tanyatalaga.

 

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