A Label Mr. Dolce and Mr. Gabbana Don’t Like

http://www.nytimes.com/2013/07/26/business/global/a-label-mr-dolce-and-mr-gabbana-dont-like.html

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MILAN — In Italy, where burlesque public anger can be its own form of fashion statement, the designers behind the Dolce & Gabbana label made their reaction to an insult high art.

Stefano Gabbana and his designing partner, Domenico Dolce, took offense when a city official labeled them tax evaders. That the official, a Milan City Council member responsible for local commerce named Franco D’Alfonso, made the comment after the designers were sentenced by an Italian court to 20 months in prison and ordered to pay 500,000 euros, or $660,000, in damages to the Italian tax agency, did not seem to matter.

They took umbrage. Great umbrage. “Revolting and pitiful,” Mr. Gabbana told his 411,000 Twitter followers last week, after reading the comment in a newspaper article. Then the designing duo shuttered their Dolce & Gabbana boutiques in this fashion capital. Would-be shoppers were greeted by notices that the shops had been “closed out of indignation.” They published full-page ads in Italy’s two leading national newspapers and The International Herald Tribune, objecting to “continuous slander and insults” by the media, prosecutors and Italian tax authorities.

The mayor of Milan eventually weighed in by inviting Mr. Dolce and Mr. Gabbana to the city hall for a sit-down meant to restore peace in the country’s fashion capital. The two designers have not decided whether they will meet with him.

On Wednesday, in an interview in their Milan studio, Mr. Dolce and Mr. Gabbana seemed to be taking a rhetorical breather. “We wanted people to understand what was happening to us and, more important, to our company,” Mr. Gabbana explained.

Mr. Dolce added: “We haven’t said a word for years. We’ve been calm throughout this whole ordeal. But when we heard what the councilman said, we realized it had been useless.”

Their tax issue might be harder to resolve. The case arose from the sale in 2004 of their brands to a Luxembourg company, which prosecutors argued was actually run from Italy and had been set up for the purpose of paying lower taxes — 4 percent in Luxembourg, according to the prosecution, compared to the 37 percent they would have had to pay in Italy.

In a country where tax evasion is regarded by many people, including some in the fashion world, as a national sport, Mr. Dolce and Mr. Gabbana are hardly the first designers to have trouble with the tax authorities. In some cases, the infractions, which have varied in severity, have been settled with the payment of a fine. In others, the charges have been thrown out.

What set this case apart was that the designers were charged by prosecutors with a “criminal design” to defraud the state. But that allegation, which prosecutors said was a sophisticated scheme to avoid income taxes on nearly 800 million euros ($1.05 billion), was thrown out by the Milan court.

The court’s criminal court ruling was handed down just days before the men’s wear summer shows here, and Mr. Gabbana said he had received calls from frantic buyers wondering whether the designers would be heading to jail instead of the runway. One newspaper remarked that the Dolce & Gabbana men’s collection featured the sort of stripes associated with jailhouse apparel. But the show went off without a hitch, save for a streaker who invaded the runway after the designers had taken their bows.

“All we care about is making clothes and instead we’ve found ourselves in an unsustainable situation,” Mr. Gabbana said Wednesday. “We’re against tax evasion. We’re happy to pay taxes. We haven’t hidden behind a residence in Monte Carlo,” he said, referring to a country that is a tax haven for many wealthy people from Italy and elsewhere.

Mr. Dolce and Mr. Gabbana are appealing their conviction, saying the prosecution misunderstood the nature of their business and profits.

Governments in Italy, and in countries across economically distressed Southern Europe, are intent on fighting tax evasion as austerity budgets and high unemployment take a toll on the rank and file citizens, and some well-known people have been caught in the cross-fire. In Spain, a prosecutor is investigating Lionel Messi, star of the F.C. Barcelona soccer team, and his father on suspicion of tax evasion to the tune of about 4 million euros ($5.2 million). In Greece, politicians, business executives and bankers are making headlines, with some incarcerated in a white-collar crackdown on tax dodgers.

Under Italian law, the Dolce & Gabbana case must go through two more rounds of appeal before it ends.

In addition to that complicated criminal case is a parallel one in a financial court that has ordered the business partners to pay a fine of nearly 400 million euros ($529 million) for tax avoidance on earnings that the criminal court ruled did not exist. They are appealing that conviction as well. A different financial court has imposed a fine of 40 million euros ($53 million) to their erstwhile Luxembourg company — Gado — for failing to pay Italian taxes. That conviction was upheld on appeal, and is now waiting to be heard by a higher court, the final arbiter.

For the financial year 2011-12, their privately held company’s consolidated revenue was 1.1 billion euros ($1.46 billion). Both men expressed concern over the pending decision on the fiscal court’s fine of 400 million euros. “If we lose the case and have to pay we’ll be forced to sell the company,” Mr. Gabbana said. “We’ll be forced to close.”

Shutting their shops was impulsive, the partners acknowledged, but they said they had no regrets and that their public protest was worth losing the sale of a couple of dresses. “We said we’re going to close the stores so that all citizens can see how a Milanese company is treated,” said Mr. Gabbana.

“We’re all for peace in the family,” Mr. Dolce said. Mr. Gabbana added: “It’s all rather silly. Of course it will blow over.”