While the fashion industry gears up for what is sure to be another sexy Sicilian fashion show from Dolce & Gabbana during Milan Fashion Week, designers Domenico Dolce and Stefano Gabbana are bracing themselves for another courtroom battle over their alleged tax evasion.
And this time, the stakes are even higher than before: According to Forbes, the designers could face up to five years in jail as well as a hefty fine.
The designers first came under scrutiny in 2010, when they were accused of setting up a holdings company in Luxembourg to avoid declaring over 840 million euros ($1.1 billion) in sales to the Italian government. The government promptly indicted the duo for tax evasion–only to have a lower court drop the charges a couple of months later due to lack of evidence. Then in November 2011, Italy’s Supreme Court re-opened the case against the designers, and in October 2012, the Court ruled that tax avoidance, or tax mitigation, on an earnings declaration, is a criminal offense under the law.
As the trial against the designers heats up, Forbes is reporting that the Milan judge assigned to the case will hear testimony from Italian tax officials and other witnesses claiming Dolce and Gabbana evaded over $500 million in taxes on well over $1 billion in royalties when they sold their Dolce & Gabbana and D&G brands to their own Luxembourg-based holding company in 2004.
But it's not all bad news for Dolce and Gabbana: According to the business magazine, the two designers are the fashion industry's newest billionaires, each with a personal net worth of over $1 billion.
Forbes used a 2011 filing from Dolce & Gabbana’s parent company, which reported revenues of just under $1.5 billion, and price-to-revenue ratios for similar public companies, to calculate the net worth of the designers, who each own 50% of the privately-held company.
Ironically, it was probably their success (and boatloads of money) that put them under the Italian government's microscope.
We've reached out to Dolce & Gabbana and are waiting to hear back.