There’s no such thing as a tax haven!

Written on 20 June 2013

Yesterday, news of Domenico Dolce and Stefano Gabbana’s crimes rocked the fashion world: the famous duo have each been sentenced to one year and eight months in prison by the Italian Supreme court and were fined just under half a billion euros between them. The Internal Revenue Service has, independently of the courts, fined the pair €343m and their accountant has been sentenced to two years imprisonment.

This is all because Dolce and Gabbana, like many other multinational companies you may have seen in the press recently, are guilty of “sophisticated tax fraud” and have evaded paying at least €200m in tax!

In 2004, Dolce and Gabbana sold its brand to GADO Srl for €360m, a mere third of its fair value, in an attempt to avoid the tax charges faced by Italy’s business occupants (one of the highest corporate tax rates in the world). GADO was set up by the pair to remove the profits into Luxembourg to be taxed at a significantly lower rate, despite the main operations still running in Italy.

Much like the UK, since the financial crisis and after several huge evasion cases (including that of Mr Silvio Berlusconi), Italy is also initiating a crackdown of tax evasion schemes. The Finance Police, as they have been aptly named in Italy, have focussed on holding companies registered in Luxembourg, a widely used tax haven for Europeans, with an aim of bringing back billions of euros to the country to assist their recovery.

You would have thought that with all the publicity surrounding global entities such as Amazon and Starbucks, companies and their directors would be more alert to the huge negative publicity that accompanies the discovery of tax evasion on such a scale.

I’m looking forward to seeing how targeting these tax evaders will begin to have an effect on other companies and whether we will continue to see stories such as this making the front pages for the foreseeable future.