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Jan 25, 2019
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Kering contests Italian tax claim

Jan 25, 2019

Having previously stuck to a terse "no comment", Kering has now distributed a press release concerning the investigation opened in Milan in 2017 about alleged tax evasion at its Gucci brand. According to information circulated by the press until now, the brand was under investigation for an estimated 1 billion euros in unpaid taxes. In its release, the French luxury group stated that "the estimated claimable tax amount [...] corresponds to approximately 1 400 million euros," according to an audit carried out by the Italian tax authorities. 

The latest runway show of Kering's flagship brand, Gucci - © PixelFormula

"An audit unit of the Italian tax authorities completed a tax audit and delivered today a report alleging that Luxury Goods International (LGI), a Swiss subsidiary of Kering, conducted business activities in Italy which should have resulted in payment of Italian corporate taxes, an assertion that Kering contests," the group explains, going on to point out that "the above-mentioned audit report covers the results for the years 2011 through 2017."

"Kering challenges the outcome of the audit report both on the grounds and the amount. Kering is confident about the proceedings currently underway and will continue to fully cooperate in complete transparency with the Italian tax authorities in order to defend all its rights."

Listed on the stock exchange, the group no doubt felt the necessity to make a statement in order to reassure the markets and its investors. "At this stage of the proceedings, Kering does not have the necessary information to record a specific accounting provision based on a reliable estimate of the tax exposure," Kering continued in its press release. 

Milan's public prosecutor's office concluded its investigation in November, opening the way for a formal request for trial. The Italian court suspects the luxury company to have paid taxes on profits made in Italy in another country with a more favourable tax system. It is alleged that Gucci in particular, the group's flagship brand, accumulated revenues which should have been taxed in Italy and not in Switzerland, as they were recorded via the logistics and distribution platform Luxury Goods International (LGI), which is based in Switzerland and is used by most of Kering's brands.  

In March of last year, French news website Mediapart claimed that the French conglomerate had dodged 2.5 billion euros worth of taxes since 2002, "mostly to the detriment of the Italian public purse but also that in France and in Britain." Mediapart also stated that, following the acquisition of Gucci in 2000, Kering extended the system conceived by the Italian company to all of its luxury brands outside of its jewellery division, including French labels Balenciaga and Yves Saint Laurent. The website further claimed that Saint Laurent alone had evaded around 180 million euros in taxes in France. 

On Friday 25 January, Mediapart cited "new confidential documents" which had been shared with the European Investigative Collaborations (EIC) media network to claim that Kering had "saved on 50 million euros in taxes by paying the former boss of Gucci in Panama," referring to Patrizio di Marco, who led the Italian brand from 2008 to 2014. 

In a second release sent to AFP on Friday following the publication of Mediapart's article, Kering stated that "this concerns a private matter related to ongoing judicial proceedings; for this reason the group will not be commenting." The group further claims that "the source for the Mediapart articles about the tax status of the company is a former manager who was fired by Kering for serious misconduct in 2016, when the group was able to prove the wrongdoings committed by this individual to the detriment of their employer." 

"This manager took advantage of their role to commit fraudulent acts which damaged the group by embezzling several million euros," claims Kering, stating that it filed a complaint for abuse of confidence with Milan's public prosecutor's office. 

As for the possibility of a fiscal investigation in France pondered by Mediapart, the luxury group highlighted that "most of the company's French businesses are undergoing or have recently undergone a tax audit, which is not unusual for a company of Kering's size." 

Additional reporting from AFP

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