Tuesday, April 2, 2013

Dolce & Gabbana slapped with fine for tax evasion

    My Orchids. Phalaneopsis dressed by Dolce & Gabbana. Photo ET


Dolce & Gabbana slapped with fine for tax evasion


Domenico Dolce and Stefano Gabbana were accused to have used a Luxembourg shell company, GADO Sarl, to control their brand and avoid taxes in the order of $450,000.

The Luxembourg company registration shows the following incorporation on March 3, 2004 and the eventual change back to an Italian corporation on May 10, 2008. (The tax probe had begun in 2007). 
No Reg. de Commerce:
B0100017
Forme juridique:
Société à responsabilité limitée de droit luxembourgeois
Date de constitution:
4.3.2004
Adresse postale:
10, VIA GOLDONI

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What is the difference between tax avoidance and tax evasion? 

In the US, the short funny answer is: 5 years in jail.

But briefly, tax avoidance is using all legal means to minimize taxes, however tax evasion uses illegal means to pay no taxes.

Though the UK might even distinguish between good and bad tax avoidance, using concepts such as "artificial avoidance schemes" versus those "using ordinary sensible tax planning". And there we may find the devil in the detail, a situation that might also explain that in Italy, in a first court case the accused were found not guilty, until a "cassation" court found otherwise. Dolce and Gabbana as it seems will appeal.

For the observer, there are some unanswered questions:

1. Who advised D&G in Luxembourg, and brought them into this mess? Was the scheme tested, supported by fiscal rulings? The 2008 switch back of headquarters to Italy, was that a move to document good faith, or was it panic?

2. Those advisers, and indeed the Luxembourg government should be alarmed at the sight of activist Italian judges, if indeed a legitimate setup in Luxembourg, implemented according to the rules and regulations and European law, is negated by courts in other European jurisdictions. If it was not legitimate, which mistakes have been made, and who is liable?

3. If the whole Luxembourg setup was legitimate, were the Italian court decisions politically motivated? In which case it would become a Luxembourg-Italian bilateral issue if not a European one. The end of the free flow principles? This is one of the legitimate questions where the Luxembourg government might have to defend its turf, meaning a legitimate financial center, not the tax haven.

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