For many years, “Dolce and Gabbana” has been synonymous with luxury, elegance, and glossy pictures of haute couture. Now, however, their latest photoshoot might be a mug shot.
Italian designers, Domenico Dolce and Stefano Gabbana, were sentenced to eight months in prison yesterday for tax evasion. The charges date back to a transaction in 2004, when the designers sold two of their main brands to Gado, a Luxembourg based company where, according to the prosecution, they could avoid declaring royalties.
For now, however, the charges are largely nominal. Italian law, unlike Italian fashion, is very commodious. Sentences under three years may be served under house arrest or with community service, if they must be served at all. Defendants are given two chances to appeal with many years intervening.
The designers’ attorney, Massimo Dinoia, plans to appeal, arguing the charges are “groundless.” Luxembourg’s corporate tax rate is next to zero while Italy’s is 28%. It is unclear how the transaction violated Italian law.
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No country’s corporate tax rate matches that of the United States, however, at an astronomical 35% federal rate in addition to state tax. Many companies, like Dolce and Gabbana, have been caught in the cross hairs of competing corporate tax rates. Just last month, Apple CEO Tim Cook testified before the Senate Permanent Subcommittee on Investigations to determine whether the company’s tax strategy was legal. Apple admitted to avoiding the U.S.’s high corporate tax rate by repatriating most of its income overseas.
While the Senate ultimately confirmed that the company had done nothing illegal, Senators Carl Levin and John McCain expressed their outrage at Apple’s tactics. However, when it is clear that companies like Apple and D&G are not violating tax law, it is hard to be outraged when they do not voluntarily offer the government more money. It seems unavoidable that companies will seek out the lowest tax rates legally possible and smacks of hypocrisy, as some point out, when the accusers do the same as the accused.