The devil wears Prada and is in the details of tax avoidance

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The devil wears Prada and is in the details of tax avoidance

After Dolce & Gabbana it is Prada's turn to get clobbered by the Italian tax man, or is it a woman?

Remember Domenico Dolce and Stefano Gabbana? They sold their brand to a Luxembourg company they owned, which allowed for important tax savings. A setup most certainly advised by a significant and credible tax advisor. But when two jurisdictions collide, it is tax avoidance vs. tax evasion. The Italian side won in Italy. Both Dolce and Gabbana got fined about $440 million and sentenced to prison terms. The difference between tax avoidance and tax evasion? One year and 8 months.

Next on the list of the now confident tax scrutinizers is said to be, according toForbes, Prada, for a similar structure in Luxembourg. As so often in tax avoidance, the devil is in the detail, and the Italian prosecutors, who must wear Prada, are emboldened by their earlier success and claim of tax evasion against Dolce&Gabbana. In Prada's case they see about $650 million missing. They could have used the money to prosecute more fashion houses. But then, what are we going to wear?

Here is an obvious homework to do for the Luxembourg government: you had no chance here to plead tax avoidance, and defend the legitimacy of the Luxembourg structure. It was an Italian thing. Objectively, it is also a denunciation of the Luxembourg financial center and its practices. I'm all for combating tax evasion. The Luxembourg challenge is to look deeply into this, and determine how these Italian prosecutions might violate European law. And endanger the Luxembourg financial center, and others.