From catwalk to courtroom: star designers Dolce and Gabbana go on trial for tax dodging

Italy's fashion darlings could face five years in jail for allegedly avoiding payments on €1bn of income

Milan

Fashion heavyweights Domenico Dolce and Stefano Gabbana are used to dressing people in the spotlight. This week however, they will be carefully selecting their own flattering but low-profile suit-and-tie combinations as they go to court charged with tax-dodging on a monumental scale.

The Milan-based designers, loved by films stars, are accused of avoiding tax payments on more than €1bn of income – and if found guilty, face up to five years in jail.

Prosecutors in the trial, which opened in Milan today, claim the pair sold their D&G and Dolce & Gabbana brands to their own holding company Gabo in Luxembourg in 2004, for €360m – a third of its market value – to slash their tax liability.

This, plus other dodges, mean the design duo and former partners, owe a total of more than €400m to the Italian taxman, it is alleged.

The Italian media usually pores over the star designers and their links with A-list celebrities such as Scarlett Johansson and Madonna, who wear D&G clothes. Yesterday, however, Italy's newspapers, who rely on lucrative advertising from top designers, chose to ignore the trial entirely.

The last major press reports relating to D&G's tax problems came when both were acquitted of tax fraud charges in April 2011. Another judge decided there was insufficient evidence to indict them on fraud and tax evasion.

Following an appeal to the Supreme Court of Cassation, however, prosecutors Laura Pedio and Gaetano Ruta have been able to reopen the case, by dropping the fraud charges but pressing instead for convictions on tax evasion. This time the magistrates appear to have the bit between their teeth. In June the preliminary investigations judge Giuseppe Gennari brushed aside the need for detailed committal proceedings and issued immediate indictments against the pair, suggesting the prosecution believes their case is strong. Six other people, including a financial consultant, are also on trial.

At yesterday's hearing, a lawyer for Dolce and Gabbana asked the court to annul the trial on grounds of alleged irregularities in the notification of court proceedings. The court will rule on the request on 14 December.

Neither the lawyers for the pair nor Dolce and Gabbana Milan's press office were yesterday making statements to the press. The pair have previously dismissed the accusations as "absurd", however. When the indictments were announced, Stefano Gabbana labelled the Italian tax authorities as "thieves", and threatened to leave Italy.

The trial opens just days after Prime Minister Mario Monti vowed to continue "the war on tax dodgers". Tax evasion is thought to cost Italy €200bn a year. Businessmen, professionals and the self-employed are the major culprits. Italy's public debt is on the verge of the €2 trillion mark.

Dolce and Gabbana are not the only rich and famous figures to have come into conflict with the Italian taxman. In 2000, the late opera singer Luciano Pavarotti paid €9m in back taxes. And Diego Maradona, who played for Napoli in the 1980s, is still thought to owe Italy around €38m.

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